American Orient Capital Partners Ltd v. General Enterprise Management Services Ltd
Read the full judgment text of CACV 175/2006 on BabelCite. This Court of Appeal judgment was delivered on 20 July 2007.
1. I agree with the judgment of Yuen JA.
Cited by 3 cases · Cites 1 case
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CACV 175/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 175 OF 2006 (ON APPEAL FROM HCA 4451 OF 2003 ) ______________________ BETWEEN:
Before : Hon. Cheung and Yuen JJA and Chu J in Court Date of hearing : 21 November 2006 Date of Judgment : 20 July 2007 ---------------- JUDGMENT ---------------- Hon. Cheung JA: 1.I agree with the judgment of Yuen JA. Hon. Yuen JA: 2.This is an appeal from a judgment of Reyes J in which he found, after a 4-day trial involving viva voce evidence, that (1) an oral agreement had been reached between the Plaintiff (represented by Mr Jaime Gonzalez) and the Defendant (represented by Mr Simon Murray) for the latter to pay the former a fee in return for the Plaintiff’s assistance in securing an investment by its parent company in a fund managed by the Defendant and (2) that the Plaintiff had performed its side of that agreement. 3.The Defendant is seeking on appeal to upset those findings. Mr Chua Guan Hock SC has taken us to a number of documents, witness statements and sizeable portions of the transcript to seek to persuade this court that the judge should have found no agreement, or that if an agreement had been made it had not been performed by the Plaintiff, but before I proceed to consider those matters, I should like to get one argument out of the way first. Admissibility of evidence of subsequent conduct 4.In the grounds of appeal it was said that the judge "erred in law and in principle" in his "consideration" of conduct subsequent to the date of the oral agreement. Mr Chua was asked to clarify whether he was suggesting that evidence of subsequent conduct was inadmissible at law to prove an oral agreement, in the same way that subsequent conduct is inadmissible at law to interpret the words used in a written agreement. Mr Chua confirmed that he was not contending that subsequent conduct was inadmissible at law to prove an agreement. That position is consistent with the approach of both parties at the trial, as they had both made submissions to the judge on the likelihood or otherwise of an agreement by reference to conduct both before and after the date of the alleged agreement (Judgment §100). In any event in my view that was the correct position in law. The law is summarized by the editors of Chitty on Contracts (29th ed, General Principles) in the following passage (para. 12-126):
Of course, the quality and weight of such evidence would be a matter for the trial judge. Background 5.The following is a brief summary of the important facts and events which form the background to the alleged agreement. The Defendant 6.Mr Murray controlled Simon Murray & Associates Ltd (“SMA”) which was the parent company of Simon Murray & Co Ltd (“SMC”) as well as the Defendant. Mr Murray was the chairman of the Defendant. The Defendant managed, amongst other things, a fund called GEMS Oriental and General Fund II (“Fund II”). Its target investment was US$500m. The first closing date was 30 June 2001, the intermediate closing date was 31 December 2001 and the final closing date was 30 June 2002. The Plaintiff 7.The Plaintiff was at the material time a subsidiary of the American International Group Inc (“AIG”), AIG holding 60% of its shares. In fact the Plaintiff was then called AIA Capital Corporation Ltd. Mr Gonzalez had since 1988 been Managing Director/CEO of the Plaintiff. In 2001 he was CEO heading the business for Asia. Events before July 2001 8.It is not disputed that Mr Murray was hoping to interest AIG in investing in Fund II. Once in March 2001 and again in May 2001 (before the first closing date), he secured appointments to see the chairman of AIG Mr Maurice (Hank) Greenberg and the vice-chairman Mr Edward Matthews with a view to obtaining AIG’s agreement to invest in Fund II. 9.At the meeting in May 2001 (one month before the first closing date), Mr Greenberg and Mr Matthews indicated that AIG was prepared to invest US$25 million in Fund II but this would be subject to due diligence which would be performed by AIG Investment Corporation (Asia) Ltd (“AIG (Asia)”). 10.At that meeting Mr Greenberg and Mr Matthews also told Mr Murray about the Plaintiff and suggested that he might wish to explore collaboration with the Plaintiff in business opportunities. They also told him that AIG would be disposing of part of its shareholding in the Plaintiff. 11.After that meeting at AIG, Mr Murray was anxious to contact Mr Gonzalez and to create a favourable impression. That was clear from the terms of his internal e-mail to Mr Geoff Spender the Defendant’s CEO on 6 June 2001:
12.That e-mail illustrates vividly that:
It would be noted from the words “I don’t want to lose them” and “the 30th June approaches” that the prospect of AIG’s investment in Fund II was uppermost in Mr Murray’s mind. 13.A couple of meetings were then arranged between staff of the Defendant and the Plaintiff. It is common ground that the possibility of collaboration in business opportunities was discussed i.e.:
Although disputed by the Defendant, it is clear from the Plaintiff’s Contact Report dated 11 June 2001 that the Defendant’s approach to AIG to invest in Fund II was also discussed. 14.Meanwhile, despite Mr Murray’s meetings with Mr Greenberg and Mr Matthews, AIG did not subscribe to Fund II by the first closing date (30 June 2001). 15.The due diligence exercise performed by AIG (Asia) which was completed in early July 2001 was negative. Perhaps more importantly, not only did AIG (Asia) not recommend Fund II because AIG (Asia) had an “overlapping mandate” (it was a competitor for investment in the Asian market), the report also concluded that the Defendant’s portfolio returns were “average”, its track record was “limited” and Fund II’s economics “skewed”. 16.In the meantime, Mr Murray met Mr Gonzalez for lunch in Hong Kong in early July 2001. Although the contents of the due diligence report were unknown, Mr Murray was aware that AIG (Asia) was unlikely to recommend Fund II to AIG. 17.At the end of July 2001 Mr Murray invited Mr Gonzalez to his house in France. It is the Plaintiff’s case that although they discussed collaboration, the Defendant through Mr Murray separately agreed that should the Plaintiff help to secure AIG’s investment in Fund II, the Defendant would pay the Plaintiff a fee of 2% of the investment sum. 18.The Defendant’s case was that what was discussed was a “package deal” incorporating both collaboration with the Plaintiff and placement by AIG of funds in Fund II. According to the Defendant, the package deal comprised the following (taken from the judgment):
Events after July 2001 19.About two weeks after the visit to Mr Murray’s house and after consulting his associates at the Plaintiff, Mr Gonzalez wrote to Mr Matthews declaring that “contrary to the recommendation of [AIG (Asia)], I submit that AIG should favourably consider the proposal to participate in this Fund [Fund II]” and listed a number of points in the Defendant’s favour. 20.About three weeks after that, AIG decided that it would invest in Fund II – despite the negative due diligence report from AIG Asia. In due course a sum of US$25 million was invested, with an extra US$500,000 paid by way of premium (as the first closing date had expired). 21.However the Plaintiff failed to introduce any other investors to Fund II and the collaboration negotiations between the Plaintiff and the Defendant were not fruitful. 22.After an erroneous invoice in March 2002, the Plaintiff invoiced the Defendant in April 2002 for US$500,000 being 2% of the AIG investment sum of US$25 million. The invoice was disputed (at least in part) by the Defendant. 23.Fund II closed in June 2002 without any further investment by AIG or investment by investors introduced by the Plaintiff. 24.After the Plaintiff pressed for payment, in September 2002 the Defendant consulted solicitors who wrote to the Plaintiff raising the question of the legality of any payment to it under the Prevention of Bribery Ordinance. 25.This was followed in May 2003 by a letter from the Defendant direct to AIG raising among other things the same issue of legality. AIG replied to the effect that although AIG was not aware of the fee arrangement, the receipt of placement fees had always been part of the Plaintiff’s regular business. AIG also said that its decision to invest US$25 million in Fund II was not “influenced” by Mr Gonzalez or the Plaintiff (a reply that was in fact drafted by Mr Gonzalez). 26.The Defendant not having made any payments to the Plaintiff, a writ was issued in 2003. Issues 27.Originally three issues were identified:-
However at trial the legality issue was conceded and it has not been pursued on appeal. Trial 28.Both Mr Gonzalez and Mr Murray gave viva voce evidence before the judge, as did Mr Spender and Mr Nick Powell (a director of SMA and SMC who was involved in raising funds for Fund II). There were also a large number of documents, including some significant contemporaneous documents. Judge’s findings 29.The judge held that there was an agreement and that the Plaintiff had performed it. In making the finding that there was an agreement, the judge emphasized the letter from the Defendant to AIG in May 2003 about the legality of the Plaintiff’s claim to payment. The judge held:
30.As for the finding that the Plaintiff had performed the agreement, the judge found that the Plaintiff’s obligation was no more than to “assist” the Defendant to secure AIG’s investment. There was no condition that the Plaintiff’s actions had to be an effective cause of AIG’s investment. The Plaintiff did render assistance in that Mr Gonzalez wrote on the Defendant’s behalf to AIG before AIG decided to invest in Fund II. Grounds of appeal 31.Mr Chua for the Defendant argued that in finding that there was an agreement, the judge’s approach was unsustainable and unfair in that the evidence both up to and after the time of the alleged agreement was equivocal, that the judge’s conclusions were “at odds” with unchallenged evidence, incontrovertible facts and contemporaneous documents, and that he had failed to draw the correct inferences. Mr Chua also argued that as for the finding that the Plaintiff had performed the agreement, the judge’s conclusion was unsupported by the Plaintiff’s own evidence. Principles 32.It is well-established that an appellate court should be very slow to interfere with findings of primary fact unless there was no evidence to support those findings or the findings were contradicted by agreed facts or incontrovertible contemporaneous documents. As Lord Hoffmann said in Biogen Inc v Medeva plc [1997] RPC 1 and repeated in Piglowska v Piglowski [1999] 1 WLR 1360:
To this, the Court of Final Appeal has added in Ting Kwok Keung v Tam Dick Yuen [2002] 1 HKC 601:
(1) The agreement issue 33.I have set out in paragraph 29 those passages from the judgment in which the judge explains why he regarded the letter in May 2003 to be the circumstance that most clearly points to there being an agreement. His Lordship elaborated on his reasons in paragraphs 105-121. 34.The judge asked himself what was the point of the Defendant “bothering AIG about whether [the Plaintiff] had authority to receive a placement fee” (para. 117). Mr Chua’s suggestion at trial was that the Defendant may have wanted to enter into a commercial settlement with the Plaintiff. There was some support for this from the letter itself where after stating the Defendant’s case of a “package deal”, Mr Spender then said “to maintain good faith, we have considered the issue” and also from some parts of Mr Murray’s evidence when he said “I’m also debating whether I should give him something anyway” (Transcript p.113). However I think the judge was entitled to reject a commercial settlement as the reason because Mr Murray’s evidence about this stage of the events was that he was by then hostile to the Plaintiff (Transcript p.114):
35.Having said that I understand Mr Chua’s concern about the judge’s view that if there was no agreement, the Defendant could simply have peremptorily refused to make any payment and the judge’s dismissal of the inquiry made with AIG as “an elaborate charade”. In doing so, the judge seems to have failed to consider that if AIG’s response had been that the Plaintiff was its agent and had no authority to accept the sum sought, the effect of that response in the light of the Prevention of Bribery Ordinance may well have provided the Defendant with a “silver bullet solution” - a once-and-for-all answer in law that would override the factual dispute between the parties about what Mr Murray and Mr Gonzalez had said to each other nearly two years before. Although Mr Murray did not give this explanation in cross-examination when he was asked by the judge why he did not simply say “Sorry, there’s no agreement. End of story”, he did refer to “going in a legal direction” (Transcript p.113). 36.However an appellate court should not interfere simply because it may disagree with a judge’s weighing of an individual piece of evidence. It should ask itself whether the judge was entitled on the whole of the evidence to make the finding that he did. 37.It is important to note that the judge did not rely solely on the May 2003 correspondence. He said:
38.Having considered counsel’s submissions, the contemporaneous documentation and the transcripts, I agree that the judge was entitled on the evidence to find that an agreement had been made and that the Plaintiff had performed its obligation. 39.Mr Chua relied heavily on what he called “unchallenged evidence” which I will discuss in more detail below. However as a general rule, it should be remembered that when counsel does not specifically put to a witness that an allegation in a witness statement is incorrect, that allegation does not necessarily become “unchallenged”. All the documentary evidence, witness statements and oral testimony given in a case must be taken as a whole to ascertain the truth of the matter. In my view the alternative approach would be an unacceptably mechanistic sentence-by-sentence (or even word-by-word) challenge of the other party’s allegations in witness statements, an approach which would be unduly time-consuming and of no benefit to either the court or litigants. 40.Having said that I shall consider each of the pieces of “unchallenged evidence” on which Mr Chua relies. Mr Chua first referred to Mr Murray’s statement that when he met Mr Greenberg and Mr Matthews in March and May 2001 he had been told that AIG would invest US$25 million, “notwithstanding known opposition by AIG (Asia)”. However that statement is inconsistent with Mr Murray’s own e-mail of 6 June 2001, when he wrote: “They are seeking input from their guy in Hongkong ... I don’t want to lose them because we get a negative from Hong Kong ...” – hardly the language of a person who thought he had firmly secured AIG’s investment. To that may be added an in-house memo of the Defendant after a meeting with the Plaintiff’s managing director on 11 June 2001 which also reported amongst other things that “Thomas [the Plaintiff’s managing director] stated that he would have further discussions with Jaime Gonzalez over this week so that they can evaluate the benefits of an AIG investment in [Fund] II”. The conclusion from the Defendant’s own contemporaneous documents was that AIG’s investment could not rest on Mr Greenberg and Mr Matthews’ say-so only. 41.As for Mr Chua’s argument that the Defendant would not have permitted AIG (Asia), a competitor, to review its confidential information if Mr Murray had not believed that the Defendant had a firm commitment, again the facts speak for themselves. Mr Murray’s own evidence was that he was eager to secure an investment by AIG, the second largest company in the United States. And it was not just one potential investor. An investment by AIG in Fund II would assist in bringing in other large investors (Mr Murray: Transcript p.133). But with AIG came the need for due diligence to be performed by AIG (Asia). There was no evidence that AIG could have been persuaded to make an investment otherwise. Mr Murray accepted in cross-examination that as AIG was a publicly-listed company, due diligence was necessary for AIG to be able to satisfy itself that it was acting properly in making this investment (Transcript p.122). 42.Mr Chua also relied on a passage in Mr Murray’s supplemental statement where he says he was informed by Mr Matthews in July 2001 that AIG (Asia) had completed due diligence and that AIG’s top management would proceed with the US$25 million investment and considered that competition between the Defendant and AIG (Asia) would be beneficial. However it is clear from Mr Murray’s oral evidence that at that time he only knew that AIG (Asia) was against the deal but he did not know the actual result of the due diligence report, so the only argument foreseen was professional jealousy (Transcript pp.129-130). 43.As noted above however, not only did the report not recommend AIG participation because of competition with AIG (Asia), it also contained criticisms of the Defendant’s returns and Fund II economics, supported by appended Investment Fact Sheets and Portfolio IRRs. More importantly, the Defendant’s case that by July 2001 it already knew that AIG would proceed with the US$25 million investment is inconsistent with the letter dated 26 September 2001 from Mr Murray to Mr Matthews thanking him for “the great news that you will support [Fund II]”. Even though the letter referred to an earlier letter saying the same thing, it is clear from the context that that earlier letter was sent less than a fortnight before. Indeed Mr Murray accepted in cross-examination that September 2001 was the “first occasion when Mr Matthews actually made a commitment to support the fund by investing in it” (Transcript p.133). (Emphasis added). 44.As for Mr Chua’s argument based on Mr Murray’s friendship with AIG (Asia’s) head Mr Cesar Zalamea, that is irrelevant because Mr Murray believed Mr Gonzalez to be (in his own words) “their [AIG’s] man in Hong Kong”. It was therefore perfectly reasonable for Mr Murray to have sought Mr Gonzalez’s help rather than attempt to persuade Mr Zalamea to subvert his own company’s report in favour of a competitor. 45.Also it mattered not whether Mr Gonzalez was kept informed by the Defendant of the due diligence exercise. What did matter was that there was a negative due diligence report from AIG (Asia) and nothing on paper to counter those points – until after the meeting in France when Mr Gonzalez put pen to paper and wrote a defence of Fund II. 46.Finally the fact that the Defendant had not previously paid more than 1% placement fee or commission is neither here nor there. The Plaintiff was not any ordinary placement agent. AIG was not any ordinary investor. It was the second largest company in the United States whose participation would draw in even more big investors, but at the same time, it had received a negative due diligence report which had to be countered. On top of that the Plaintiff’s involvement brought with it the possibility of cross-holdings enabling the Defendant’s group to enter into a closer relationship with AIG as co-shareholders of the Plaintiff. So it would not be surprising that when Mr Murray invited Mr Gonzalez to his home in France he agreed to more than the usual rewards than for an ordinary placement agent. As a matter of completeness, it would be noted that Mr Powell’s evidence was that a 2% fee was within the range for placement agents (the maximum, for full package global service). 47.As the judge noted, Mr Gonzalez’s evidence was supported by contemporaneous evidence. Whilst certain documents read in isolation may have been equivocal, it is important to note that the court was not construing a written agreement and the judge was entitled to find that read together, the contemporaneous documents presented a sufficiently clear picture of the agreement asserted by the Plaintiff. 48.In my view paragraph 2 of Mr Gonzalez’s e-mail of 29 July 2001 was clear support for the agreement. Although the e-mail also refers to other matters discussed which matters Mr Gonzalez had to “mull over” with his associates, it is important to note that he said at the end:
It was common ground at the trial (from the evidence of both Mr Gonzalez: Transcript p.30, p.78 and Mr Murray: Transcript p.137) that as a matter of commercial activity, the payment of the placement fee for the Plaintiff’s assistance and the parties’ possible future collaboration were two distinct commercial activities. Accordingly if (as the Defendant says) there was a “package deal” with only the possibility of an agreement some time in the future, the Plaintiff would in the meantime have done the Defendant a great favour by arguing its cause against AIG (Asia)’s report – for no compensation whatever. 49.Further support for the Plaintiff’s case was provided in my view in the e-mail from Mr Gonzalez to Mr Murray of 4 December 2001. This said:
50.Whilst the use of the word “offer” may be equivocal on its own, in the context it is sufficiently clear that the 2% fee was an extant self-contained agreement, and not part of a “package deal”. Mr Murray accepted under cross-examination that the co-operation aspect “wasn’t in any way dependent upon or intricately necessarily connected with the placement fee” (Transcript p.137). 51.Further, in an e-mail of 18 December 2001 from Mr Gonzalez to Mr Murray after a meeting, Mr Gonzalez said in as clear a way as possible (in a passage that was separate from other discussions):
There were no “comments or changes” from the Defendant. 52.In all the circumstances I agree that the judge was entitled on the evidence to find that an agreement had been made (2) The performance issue 53.An agent normally only earns commission if he is an or the “effective cause” of the business transacted between his principal and a third party, but the issue in the present case is whether the Plaintiff had performed the agreement that the Defendant had made with it for which a fee was agreed. 54.It should be noted that Mr Gonzalez’s e-mail to Mr Murray of 29 July 2001, para. 2 read:
55.The judge was entitled on the evidence to find that the Defendant had agreed to pay the Plaintiff 2% of AIG’s investment in Fund II - not for introduction but for assistance in pursuing AIG’s participation in it. Mr Murray’s belief in the need for Mr Gonzalez to assist Fund II’s cause was self-evident in his e-mail of 6 June 2001 and there was no evidence that anything had occurred between then and the end of July to have caused him to have changed his mind. The evidence was clear that notwithstanding Mr Murray’s meetings with Mr Greenberg and Mr Matthews, the hard fact was that they could not commit without Fund II undergoing due diligence (“limited” though it may have been), and the harder fact was that the first closing date had come and gone without AIG’s participation and even harder still, a negative due diligence report had emerged. 56.The judge was entitled on the evidence to take the view that more than ever, Mr Murray needed Mr Gonzalez to act as the Defendant’s “in-house” advocate within the AIG group to counter the effect of AIG (Asia)’s negative due diligence report. 57.Two weeks after the meeting in France, after preparation work with his associates Mr Gonzalez committed himself on paper by writing to AIG arguing “the other side” to AIG (Asia)’s report. In my view it mattered not what Mr Matthews meant when he said that document had no “influence” on AIG’s decision three weeks later to participate in Fund II. The promise made by the Plaintiff was to take action to assist the Defendant in its effort to obtain AIG’s investment. Action was taken, in the form of Mr Gonzalez’s written opposition to AIG (Asia’s) negative recommendation. The Plaintiff was, in Mr Murray’s own words, “a voice on our side of the table” (Transcript p.131). 58.In the circumstances, the judge was entitled to find that the Plaintiff had performed its part of the bargain. Order 59.For the reasons given, I would dismiss the appeal with costs to be paid by the Defendant to the Plaintiff (the parties having agreed that the costs would follow the event). Hon. Chu J: 60.I agree.
Mr Russell Coleman SC instructed by Jewkes Chan & Partners for the Plaintiff (Respondent) Mr Chua Guan Hock SC instructed by Slaughter & May for the Defendant (Appellant). | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment