Telings International Hong Kong Ltd v. John Ho and Others

CACV 10/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 10 OF 2010

(ON APPEAL FROM HCA NO. 2114 OF 2005)

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BETWEEN

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Before: Hon Le Pichon JA, Stone and Bharwaney JJ in Court

Date of Hearing: 16 September 2010

Date of Handing Down Judgment: 22 October 2010

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J U D G M E N T

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Hon Le Pichon JA:

1.This is an appeal by the first defendant (“Mr Ho”) and the second defendant (“Mr Chan”) (collectively “the defendants”) from an order of Chung J dated 16 December 2009 whereby the defendants were ordered to pay the sum of $136.24 million with interest as from 27 October 2005 to the plaintiff (“Telings”) and their counterclaim was dismissed. At the conclusion of the hearing judgment was reserved which we now give.

The proceedings below

2.Telings’ claim is based on a sales and purchase agreement dated 15 December 2003 (“the Ho King agreement”) in which Telings as vendor sold the entire issued share capital of one of its subsidiaries, Uniplan Assets Ltd (“Uniplan”) to the third defendant in the action below, a company known as Ho King Assets Corporation (“Ho King”), for $141 million.  The defendants are parties to the Ho King agreement as guarantors and this case has been pursued to enforce these guarantees.

3.Uniplan has a wholly owned subsidiary called Ming Kong Property Ltd (“Ming Kong”), which in turn owns 75% of a joint-venture company known as Lanzhou International Trade Building Company Ltd (“the JV company”).  The JV company is engaged in property development and Mr Chan (together with his business associates) owns 24%.  A PRC entity owns the remaining 1%.

4.The action commenced on 28 November 2005 and default judgment against Ho King was entered in December 2005.  The defendants who were sued on their guarantee defended the claim on the basis that the Ho King agreement was never meant to be enforced but, to the contrary, formed part of a scheme which George Tan (“Mr Tan”) of Carrian fame had devised to secure the reverse listing of the JV company in the Alternative Investment Market in London (“AIM”).  It is the defendants’ case that Mr Tan is the real owner of the plaintiff, while his three daughters are the ostensible owners.  Through a web of companies, the daughters have a 90% interest in the issued share capital of Windway Enterprises Ltd, the parent company of the plaintiff.  One of his daughters, Vicki Tan, is a director of the plaintiff.

5.The judge below summarised the case before him as follows:

“   17.  Telings’ case is that the Ho King Agreement (which, as aforesaid, was executed on 15 December 2003) was a genuine sale and purchase.  The reason for the transaction is said to be that Tan was upset by the earlier attempts to get the Lanzhou company listed, and did not mind selling Tan’s portion of the Lanzhou company’s shares.  On the other hand, Ho and YS Chan wanted to make a profit out of the exercise.  They wanted to try it on their own and planned to pay off Telings with the fund which (they hoped) could be obtained through the listing exercise.  It is unclear if Bloom was also one of the “purchasers”.  It would appear from some of the contemporaneous documents that he was (see para. 33 to 45 below).  But it is unnecessary to resolve this point in this action.

18.  On the other hand, the case of the defence is that Tan still wanted to realize his vision of getting the Lanzhou company publicly listed.  Because of the obstacle posed by the requirement to disclose his connection with the listed company, Tan asked Ho and YS Chan to be his “fronts” to conceal this from the London listing authorities.

19.  Thus, the contracting parties never intended the Ho King Agreement to be performed.  Telings, Ho, YS Chan and Ho King signed the Ho King Agreement on that understanding.”

Pausing here, since no evidence was forthcoming from Telings, the basis for Telings’ case, as stated in §17 of the judgment, is unclear.

6.The judge approached the matter on the basis that “the overall relevant factual framework leading to (and surrounding the Ho King Agreement) is in fact largely undisputed”.  In fact, a number of disputed issues were left unresolved, the judge taking the view that their resolution was not crucial to the determination of the dispute.  Quite why that view was taken is not readily apparent: factual findings on those issues undoubtedly would have had a bearing on the credibility of the defence witnesses who did give evidence.

7.The case was unusual: although both Mr Tan and Vicki Tan had filed several witness statements on behalf of the plaintiff, and in Vicki’s case affidavits as well, they chose not give oral evidence at the trial.  In fact, the plaintiff did not call any witness to give evidence on its behalf.  Nevertheless, the judge disbelieved all 5 witnesses called by the defendants and concluded that the Ho King agreement was a ‘solemn document’ and had to be given effect.

8.In my view, a proper understanding of the case requires the complicated background to be set out in some detail.  A chronological account follows.

Chronology of events

9.Mr Chan and his business associates through Ming Kong acquired a 60% interest in the JV company in about 1993 and commenced developing commercial and residential properties.  The remaining 40% was held by PRC parties.  By the year 2000, as a result of a change in the government’s economic policy, the PRC partners had to transfer virtually all their interest in the JV company to Ming Kong except for 1%.  Ming Kong was in need of funding to pay off the PRC partners and thus needed a new “partner”.  At this time, Mr Chan was introduced to George Tan.  It is Mr Chan’s case that Mr Tan became the new partner.  The judge noted that it was a disputed issue between the parties as to whether Mr Tan was merely an ‘adviser’ to his daughters, who ostensibly are the owners of the plaintiff, but he did not consider it necessary to resolve that dispute.  Be that as it may, the judge used the word “Tan” to denote Mr Tan and/or his daughters, save where the context required the individual to be identified.

10.According to Mr Chan, Mr Tan became the new ‘partner’ (representing a syndicate of interests including Malaysian and Thai elements) through acquiring a 75% interest in the JV company and thereafter Mr Tan effectively called the shots.  Mr Chan and his business associates retained a 24% interest held through Fu Keung Venture Ltd (“Fu Keung”), which in turn was wholly owned by Shing Wah International Ltd (“Shing Wah”), a BVI company.  Shortly afterwards, Mr Tan instigated various attempts to achieve a reverse takeover or reverse listing of the JV company, endeavours which turned out to be unsuccessful, resulting in a loss of money not only to Mr Tan but also his partners:

(1) CIL –pre Sept 2001

11.The first such attempt made in the first half of 2001 related to a Hong Kong listed company, CIL Holdings Ltd. which was then in financial difficulties.  It proved unsuccessful.  On 28 September 2001 Fred Kan & Co, solicitors for the Tan family, informed CIL that the proposed investment into CIL was withdrawn.

(2) The Eurocity scheme - October 2001 to April 2002

12.CIL was followed almost immediately by a second attempt at a reverse listing through acquiring Eurocity Property plc, a company listed on AIM.  The documents show that Telings and Shing Wah (which respectively owned all the issued share capital in Uniplan and Fu Keung) agreed to sell them to Eurocity in return for a specified amount of Eurocity shares.  In effect, that was an acquisition of 99% of the JV company.  That agreement was amended by a memorandum dated 31 October 2001.  It is stated in §5 of the memorandum that the intention of Telings and Shing Wah, subject to completion of the Eurocity agreement, was to swap part of the Eurocity shares (received as consideration) for such number of shares in Hemisphere Properties PLC (“Hemisphere”) as would represent 60% of its entire issue share capital following the issue of the new ordinary shares, conditional upon Hemisphere’s successful admission to trading on AIM.  One Desmond Bloom (“Mr Bloom”) appears to have been involved: he was a director of both Eurocity and Hemisphere.  The Eurocity scheme failed in early April 2002 when an independent substantial shareholder of Eurocity indicated that it would object to the transactions.

(3) The Eastern Wind scheme – April-July 2002

13.Within days of the failure of the Eurocity scheme , on 11 April 2002, Mr Tan, Mr Bloom, Mr Chan and their respective legal and financial advisers met to consider a new plan for an independent listing (rather than via a share swap) through a direct application to AIM, seemingly so as not to let months of work and expense incurred on the putative listing go to waste.  The new scheme involved using Eastern Wind Investments PLC, a company newly formed by Mr Tan in the UK.  By 25 April 2002, Robert Lo of Nabarro Wells, a prospective nominated adviser, had sent an e-mail to Vicki Tan and Mr Wu of Fred Kan concerning the disclosure that needed to be made in Eastern Wind’s admission document in respect of Mr Tan’s history.  Mr Lo opined that:

“the document would need, as a minimum, to disclose GT’s relationship to some of the principals behind EWI, his previous role in relation to carry on and his subsequent conviction and imprisonment on charges of conspiracy to default. We would also need to be satisfied that GT is not and could not be regarded as the ‘shadow director’. Clearly, the risk of this is increased without the Eurocity directors to counterbalance the new EWI directors.”

14.Mr Tan clearly was not satisfied with this advice and, accordingly, leading London counsel’s advice on the issue of disclosure was sought and obtained on 13 May 2002.  It recorded that by the date of the advice, Mr Lo had declined to continue to act.  By letter dated 4 June 2003, the professional advisers to the scheme were advised by John Ho & Tsui (solicitors for Mr Chan) and Fred Kan & Co that their mutual clients felt “very disappointed and aggrieved” that “the matter has been jeopardised by Eurocity and again by Nabarro Wells” and had decided that the listing in the UK would be left in abeyance for the time being.

15.A week later, when Grant Thornton expressed a different view regarding the ambit of disclosure, the Eastern Wind scheme briefly revived until 31 July 2002, when Grant Thornton had a change of mind on disclosure.  This caused Mr Wu to inform the professional advisers that their ‘mutual client’ had decided to withhold and to suspend all listing exercise in the UK.

16.The judge, whilst noting (at §12) the failure of the Eastern Wind listing plan, stated that “the parties differ as to the precise cause of the failure”.  It is not evident on what material this observation was based since no evidence had been given by the plaintiff.  Rather, according to the documents available, Moores Rowland, accountants retained by Mr Tan stated:

“the precondition that there will be no disclosure of the relationship with George Tan was clearly set out at the outset. In fact they are not totally against disclosure but would not accept detailed accounts of past ‘misendeavours’ of GT. A simple reference only to the fact that GT is the father of the three girls is probably the full extent of tolerance.”

(see e-mail dated 2 August 2002 to Chilton Taylor of Baker Tilly).  The judge made no reference to this e-mail.  Nor did he explain why it was not material to make any finding on the defendants’ case that the failure to list Eastern Wind was due to Mr Tan’s refusal to disclose his history, as was pleaded in §19 (c) of the Defence.  On the available evidence, the inference is irresistible that the scheme failed because of Mr Tan’s intransigent stance on disclosure.

(4) The IOL scheme – November 2002

17.On 16 September 2002, Mr Bloom sent an email to the second defendant through the first defendant stating that he was ‘extremely interested’ in acquiring the shareholding of the ‘Tan’ family which he understood to be approximately 35% of the total issued equity for £9.75 million, payment to be in the form of a loan note repayable after three years to be secured against the shares, so that in the event of non-payment, ownership would revert to Mr Tan.  He also expressed an interest to acquire the remaining 40% owned by the Thai interests on similar terms.  Pausing here, that would have meant an offer in the region of £22 million.  But such a figure never featured in any of the documents.

18.The next relevant document is a draft letter of authorisation sent by Mr Ho to Mr Tan and Vicki seeking Ming Kong’s authorisation to negotiate a sale on behalf of the holders of its entire issued share capital (i.e. a 75% interest in the JV company) for HK$120 million to be satisfied by the issue of shares in the new company, such shares to be traded on AIM within 12 months of the date of the authorisation letter.  There are manuscript amendments to the draft but their provenance is unknown.  Thus, Mr Bloom’s ‘offer’ to acquire Mr Tan’s interest in the JV company for a cash consideration never materialised and seems to have ended up as yet another attempt by Mr Tan at achieving a reverse listing.

19.On 15 November 2002, Mr Ho sent a first draft of a sale and purchase agreement to Mr Wu for comment.  This culminated into a sale and purchase agreement (“the IOL agreement”) made between Telings as vendor and International Operations Ltd (“IOL”) as purchaser, with Mr Chan as guarantor.  The IOL agreement is dated 19 November 2002 and while, seemingly, its subject matter was limited to the 75% interest of Mr Tan in the JV company, as will become apparent the transaction contemplated was much broader and involved the whole of the JV company.

20.It is necessary to deal with this agreement in some detail because in a sense it became the ‘template’ for the Ho King agreement.  In essence, Uniplan was sold to IOL for the “Consideration Shares”, namely, such number of shares in the Listed Vehicle equivalent to £10,666,666 by reference to the initial public offer price of such shares, credited as fully paid and admitted to trading at AIM.  Loans advanced by the vendor and/or its ultimate holding company to Uniplan were to be assigned to the purchaser.  Nothing in the IOL agreement indicated what proportion of shares in the Listed Vehicle would be represented by £10,666,666 or that the vendor would have control of the Listed Vehicle.

21.The agreement contemplated that the ‘Listed Vehicle’ would be listed on AIM and would hold, directly or indirectly, the entire issued share capital of Uniplan and Fu Keung.  Thus, it already was contemplated that IOL would also acquire Fu Keung for injection into the Listed Vehicle.  Completion of the transaction depended on the successful admission of the listed vehicle within six months of the date of the agreement, i.e. by 19 May 2003.

22.The vendor’s warranties and undertakings were set out in a schedule attached to the agreement.  Appendix 1A to the IOL agreement was in the form of the “Loans Assignment” to be made between the plaintiff, IOL and Uniplan.  Also annexed to the IOL agreement were the report and accounts for Ming Kong and Uniplan.  It should be noted that the guarantor’s only obligation was as one of the warrantors.  Under clause 3.02 the warrantors gave undertakings to the vendor that the Consideration Shares would, on issue, rank pari passu in all respects with all existing issued shares of the Listed Vehicle and that the transfer of the Consideration Shares to the vendor would not give rise to any obligation on the part of the vendor to make a general offer for the shares of the Listed Vehicle under the Takeover Code and in the event of such obligation arising, to use best endeavours to obtain a waiver.  The ‘Listed Vehicle’ was none other than Hemisphere that had featured as part of the Eurocity scheme in late 2001.

23.According to Hemisphere’s prospectus dated 19 May 2004, Hemisphere’s issued ordinary share capital was admitted to trading on AIM on 5 August 2003.  As at that date, Hemisphere had not yet entered into any agreement for the acquisition of the JV company from IOL.  Meanwhile, the deadline of 18 May 2003 in the IOL agreement was extended, with a new deadline expiring on 18 November 2003.

24.In mid-August, work was proceeding on the reverse takeover.  On the basis of an issue price of GBP 0.05 per share, the Uniplan shares would translate into 213,333,320 Consideration Shares as per the IOL agreement.  In correspondence between the plaintiff and John Ho & Tsui, the plaintiff disclosed its intention to dispose of those shares to four publicly listed companies in Malaysia and the PRC for share swap and cash consideration in order to acquire the control of assets having a value in the aggregate of £314 million.

25.According to Mr Ho’s witness statement, Grant Thornton was consulted as to whether the arrangement disclosed in that correspondence would be acceptable for admission on AIM.  It would appear that Grant Thornton had been engaged by Hemisphere under a letter of engagement to act as Hemiphere’s nominated adviser and was acting as such in September 2003.  See §41 below.  However, sometime during September 2003, Grant Thornton declined further to act.

26.At that stage, any proposed acquisition of the JV company resulting in a change of control of Hemisphere would constitute a reverse takeover and would require shareholder approval at an EGM.  If the resolutions were passed, Hemisphere’s existing share quotation on AIM would be cancelled and an application would have to be made for readmission to AIM.  Two fundamental issues, namely, the approval of Hemisphere shareholders and the London Stock Exchange to the acquisition of the JV company, remained unresolved.

27.According to Mr Ho’s witness statement, Mr Robert Lo was re-approached at the end of September/early October 2003.  Mr Lo indicated that he was prepared to act as the nominated adviser on condition that Mr Tan was not a connected party to the transaction.  In §14 of his witness statement, Mr Ho stated:

“I then reported to GT and as a result, GT agreed that the “2002 Scheme” (the IOL scheme) would be revised and replaced by “2003 Scheme” (the Ho King transaction) ...”

What exactly the 2003 Scheme or the Ho King transaction encompassed is not addressed in the judgment.

28.The next event was a meeting on the morning of 22 October 2003 between Mr Tan and Mr Ho when, apparently an ‘agreement’ was reached.  Its terms are important.  Later that same day Thomas Wong Wing Hay (who was one of the original founders and investors in Ming Kong and who knew both Mr Tan and Mr Chan) met with Mr Tan and Vicki Tan.  Mr Wong made a contemporaneous memo which recorded that Vicki had briefed him and had requested him to pass a message in the following terms to Mr Chan:

“At the meeting this morning between GT/John Ho they agreed that: --

(a) the transaction be look real

(b) John Ho & YS will give personal guarantee

(c) the transaction will be £10,660,000

(d) three years period for maturity

(e) 1st year interest waive

(f) Other two years interest at a fixed rate of 3% at Payment Date

(g) Wu Wing kit represent Vendor

(h) Shares placed at 3rd party escrow account …

(i) Vendor has the right to sell & profit belonged to Vendor.”

29.This memo records the elements of what had been agreed and marks the beginning of the transmogrification of the IOL scheme into the Ho King transaction.  Paragraph (a) of this contemporaneous memo is significant in that it suggests that the transaction ostensibly agreed between Mr Tan and Mr Ho was intended to appear to be something that it was not: in other words, the true nature of the transaction was something else entirely.

30.Mr Lo’s involvement at about this time is corroborated by an e-mail from Robert Lo’s legal adviser Keith Lassman to Mr Lo dated 7 November 2003 recording Mr Lo’s concern as being “to ensure, having spoken to the Stock Exchange, that the Tan Family have no interest whatsoever in the proposed transaction to be entered into by the Company in whatever capacity”.  Mr Lassman gave advice to Mr Lo including the following:

“(i) To ensure that the purchase of the Consideration Shares pursuant to the draft Sale and Purchase Agreement as per your note of 30 October ... is not only completed but that the Consideration is paid for in full (rather than left outstanding as currently proposed by the Agreement).

(ii) You should satisfy yourself that, if any borrowings are secured by the named Purchaser in the Agreement, that they have no connection whatsoever to the Tan Family. ...”

31.On 17 November 2003, Vicky Tan, as director of the plaintiff, wrote to Mr Ho referring to a meeting with Mr Ho that morning “to exchange views” on Mr Lassman’s e-mail of 7 November 2003.  This letter read:

“We appreciate your efficiency in dealing with this matter, particularly when the second extension shall expire tomorrow on 18 November 2003.

As we concluded during the hour this morning’s session that the top priorities of the transaction are (a) 100% arms-length, (b) Tan sisters will never be allowed to be named as parties involved in Hemisphere’s prospectus for the reverse takeover exercise especially when Telings will not be holding shares in Hemisphere after completion of your proposed S&P Agreement, and (c) what is the security provided instead of Hemisphere shares which is based on commercial terms. We had been advised by our UK Leading Counsel that to avoid any misunderstanding in communication, could you kindly write to us the terms of your proposed S&P Agreement for our counsel to consider the overall strategy of your proposed S&P Agreement.

Our leading Counsel’s great concerns are to ensure the terms and conditions of your proposed S&P Agreement will not create any backfire on our present Thailand civil litigation amounting to HKD 197 million which is now pending Defendants appeal to the High Court as well as will not mislead the public shareholders of Hemisphere. As far as we are concerned, it is not our wishes and is improper for us as a vendor to get involved on the detailed discussion on the reverse takeover of Hemisphere by way of your on-sale disposal of our 75% interest to the above-mentioned listed company.

We are also concerned with the price difference between the price Telings will sell the 75% interest in [the JV company] to you and the estimated price by which you will resell the said 75% interest to Hemisphere.  As proposed in the said meeting this morning, Telings will now sell the said 75% interest to you for CASH CONSIDERATION of HKD138,666,658 (equivalent to GBP10,666,666) instead for CONSIDERATION SHARES to be issued by Hemisphere and you will pay interest on the paid balance at 4% per annum for two years when the full cash consideration shall be fully paid ... You will however resell the said 75% interest to Hemisphere at the substantially escalated price.  The price difference will give rise to suspicion on the propriety of the resale to Hemisphere and the involvement of Telings therein.  We would like to have your view and the view of Nomad thereon.”

Significantly therefore, it already was contemplated that the purchaser of the 75% interest would be onselling that interest to Hemisphere at “the substantially escalated price” and that that situation had engendered ‘concern’.  Pausing here, one might ask rhetorically why a vendor with that knowledge nonetheless would be willing to proceed in those circumstances and on the same terms?  In this connection, reference should be made to the valuation of the land made a few months later (as considered in §75 below).

32.As earlier noted, the IOL scheme was due to expire, and indeed did expire on 18 November 2003.

(5) The Ho King transaction – December 2003

33.On 24 November 2003, Vicki Tan wrote to Mr Wu enclosing for his comment a new proposed sale and purchase agreement prepared by John Ho & Tsui for the purchase of Telings’ 75% interest in the JV company.  It is to be noted that in the heading of the letter, the IOL agreement is designated the “Principal Agreement”.  It then stated:

“As you know that our London Counsel is very insistent on the spirit of this transaction which involves numerous historical events recorded with the various financial advisors. Due to the sensitiveness particularly to prevent a weakening our claim against Telings’ partner in which involved HKD197 million, therefore, it is top priority to establish an arms-length transaction.

Hence, we invite you to go through our letters to you dated 14th November 2003 and our letter copied to you on 17th November 2003 of which the spirit of these terms must be implemented into the new proposed Sale and Purchase Agreement.  Kindly give us your thoughts to us and amend a fresh proposed Sale and Purchase Agreement for us to forward to the London Counsel for his comments.”

34.Attached to that letter was a first draft of the Ho King agreement.  The similarities with the IOL agreement are striking.  In fact, it was clearly the IOL agreement ‘revamped’ to take into account the change in the identity of the purchaser, the addition of Mr Ho as one of the guarantors, and the fact that the consideration was not to be shares in the listed vehicle but instead cash, with payment deferred for two years from completion.

35.On 4 December 2003, Vicky Tan wrote to Mr Wu regarding the IOL agreement.  Interestingly, that letter referred to the IOL agreement as the “Existing Agreement” although the IOL agreement supposedly had expired on 18 November 2003.  It also referred to a letter from Mr Wu dated 2 December 2003 which is not in the trial bundles.  It recorded that leading counsel in London and the Malaysian partner had given “the green light” to the draft agreement prepared by John Ho as amended by Mr Wu.  Those amendments had apparently incorporated ‘the spirit of the direct and friendly discussion’ with Mr Ho on 2 December 2003.

36.The letter of 4 December 2003 went on to state:

“During the said discussion, Mr. John Ho was very kind to understand that the transaction must not only be seen to be arms-length but also must to be done as arms-length as this would benefit both the Purchaser’s listing exercise in London and our Thailand’s litigation. We explained to Mr. John Ho that our Malaysian partners are immediately alarmed by the fact that our position in this proposed S&P Agreement is much weaker than the Existing Agreement dated 19 November 2002 as the 75% equity interest in [the JV company] is transferred to the Purchaser upon execution. Moreover, the Leading Counsel was greatly concerned that this would create potential backfire on the litigation against Thai partners which involved Thai government bodies such as the official receivers and special managers since the Existing Agreement was authorised and approved by the full board of directors and executed by the then Chairman of Telings, Mr. Apiruk Chutrakul. Furthermore, our Malaysian partner was greatly concerned of the security provided by the Purchaser which the proposed securities to guarantee this HKD131 million are Ho King’s promissory note and personal guarantees from Messrs John Ho and Chan Yim Sang. As regards to the financial position of the Guarantors, will you please write to Messrs John Ho & Tsui to request both guarantors to provide their latest financial standing. Again, Mr. John Ho understands that this request is reasonable in order to establish this is a genuine arms- length transaction.

Since the Leading Counsel has agreed that it is lawful to execute the side agreement of undertaking based on the strength on share mortgage agreement, therefore, this will tighten the loose ends to prevent suspicion. Again, Mr. John Ho shares this view. As you are acting on behalf of the mortgagee, it is therefore more appropriate for your firm to handle.

Kindly forward your amended S&P Agreement together with the share mortgage agreement to Messrs John Ho & Tsui for their comments without further delay as during the 2 December 2003’s meeting, Mr. John Ho has indicated to proceed with execution of all these documents on 8 December 2003 which coincides with the undersigned schedule who is leaving Hong Kong on the morning of 9 December 2003 and returning on 15 December 2003.”

37.This was the first time mention was made of “the side agreement of undertaking” and of “a share mortgage agreement”.  The documents before the court shed no light on the history of those matters. The 4 December letter from Vicki Tan would suggest that the share mortgage and the deed of undertaking had emanated from Mr Wu, as the first draft of the Ho King agreement (referred to in §34 above) which is in the trial bundles contained only a draft of the Ho King agreement and nothing else.

38.This 4 December letter is significant in a number of ways.  It shows that the vendor was well aware that the security the purchaser (Ho King) proferred was worthless, hence the reference to the Malaysian partners’ being “immediately alarmed” by the much “weaker” position of the vendor; that the request for letter of “financial standing” from the defendants was no more than part of the charade of the transaction having to “look real”; that the Tans were not dealing with a ‘purchaser’ of substance in that the vendor’s interest required further protection in the form of the deed of undertaking and the share mortgage.  Looked at objectively, it could hardly be said to be an attractive transaction from the perspective of the vendor, particularly when one factors into the equation the fact that payment would be deferred for 24 months from completion of the sale which itself was not to take place until 2½ months later.

39.A lengthy meeting between Mr Ho, Mr Tan and Mr Wu then took place in the morning of 8 December 2003.  The terms agreed (which included the purchase price of $141 million, a $10 million deposit to be paid on the signing of the agreement on Friday, 12 December 2003, completion to be on 15 March 2004, and the repayment date being 24 months after completion) are recorded in an e-mail sent by Mr Ho to Mr Bloom later that day.  The e-mail also records a meeting that same afternoon with the lender of the $10 million for the deposit and the terms agreed, which included the following:

“4. The purchaser shall have an option to take 10% of Ho King in lieu of repayment of the Loan.

I suppose we have reached a better deal than before with the Lender (originally HKD7.5 million for 10% of Ho King but now is HKD10 million for 10% of Ho King).”

In the context, the ‘purchaser’ could only have meant the lender Mr Ng Kin Wah.  It is the defendants’ case that it was Mr Tan who had ‘arranged’ for Mr Ng to make the $10 million loan for the initial deposit.

40.On 10 December 2003 Mr Ho wrote to Mr Bloom recording that the lender’s solicitors had sent documentation for approval, which included a debenture to be issued by Ho King.  The lender’s solicitors also asked for £8,000 for costs plus disbursements, with Mr Ho counter offering £3,000 plus disbursements, subject to client’s instructions. Mr Ho also asked that £93,000 be remitted to his firm’s account so that he could complete the deal with Mr Tan “before he changes his mind”, the exchange rate with sterling being then in the purchaser’s favour.  Pausing there, the amount of £93,000 does not correspond either to the costs or the amount of the loan.  However, as will become apparent, the explanation appears to be the requirement of a commitment fee of $100,000 in addition to costs (see §56 below).

41.The response from Mr Bloom of 11 December 2003 was to the effect that he was not in a position to transfer the monies in that it had been brought home to him that a director of a publicly quoted company must disclose any interests in shares and beneficial or non-beneficial share-holdings and that failure to do so would be a criminal offence.  Meanwhile, Mr Bloom stated that Hemisphere would appoint Nabarro Wells as Nomad in place of Grant Thornton which previously had been appointed under a letter of engagement.  On the same day Mr Ho sent Mr Bloom a draft of an indemnity which provided for Mr Bloom to indemnify the defendants in relation to the Ho King agreement.

42.I now turn to consider the documents that actually were executed on 15 December 2003 and which together constitute the Ho King transaction.

(a) The Ho King agreement

43.The Ho King agreement as executed was modelled on the IOL agreement.  It is revealing that, apart from the striking similarity in format and content, Schedule 1 containing the vendor’s warranties and undertakings is identical to Schedule 1 to the IOL agreement and the Loans Assignment which formed Appendix 1A in the Ho King agreement appears to have been lifted directly from the IOL agreement, to the extent that draftsman had overlooked the need to alter the name of the assignee from IOL to Ho King.  The major differences between the two agreements lie in the nature of the stated consideration (which was to be cash rather than consideration shares) and the nature of the guarantee, with the guarantors in the Ho King agreement taking on personal liability for the payment of the cash consideration.  It is to be noted that Schedule 2 reveals that apart from Mr Ho and Mr Chan, Mr Ng, the lender of the $10 million for the deposit, is also a shareholder, holding 10% of the issued share capital of Ho King.

44.As executed, the Ho King agreement was also significantly different from the first draft (considered in §34 above) as had been sent to Mr Wu on 24 November 2003.  It is clear that the initial draft had evolved during the negotiation process between 24 November and 15 December 2003.

45.As regards the agreement itself, it provided for the sale of the 75% interest in the JV company to Ho King for $141 million, $10 million of which was payable upon signing and payment of the balance was deferred for 24 months from completion of the share transfer which was fixed for 27 February 2004, before which date the agreement could be cancelled without penalty.

46.Ho King is a BVI company incorporated on 8 October 2003 with an authorized capital of only US$50,000, divided into 50,000 shares of US$1 each.  According to Hemisphere’s prospectus of 19 May 2004, not only was the authorized capital issued “on a nil paid basis”, the defendants held 90% on trust for Mr Bloom and the remaining 10% issued to Mr Ng was to be transferred to Mr Ho to hold on trust for Mr Bloom.  It is not apparent when the defendants and Mr Ng became shareholders. Taken at face value, therefore, the 75% interest in the JV company was being sold to a newly incorporated BVI company with no assets, whose directors were acting as nominees for Mr Bloom.  While there were personal guarantees and promissory notes from the defendants, quite why nominees would assume liabilities of that magnitude is a matter that was neither addressed nor resolved by the judge.

(b) The deed of undertaking

47.This deed was made between (1) Ho King, (2) Mr Chan, (3) Mr Ho and (4) Telings.  The recitals recite that the deed was made in connection with the Ho King agreement and that:

“It is a condition of Telings entering into the S & P Agreement that the other parties to this Deed execute this Deed in favour of Telings.”

48.Subclause (a) of clause 1.1 contains undertakings by the defendant that unless with the written consent of Telings, Ho King will engage in no business other than acquiring the Uniplan shares and the loans from Telings, transferring them to Hemisphere in exchange for 213,333,000 shares in Hemisphere listed at AIM and holding the Hemisphere shares.  Subclause (b) provides that Ho King acquires the Uniplan shares and loans only for the sole purpose of transferring the same to Hemisphere in exchange for Hemisphere shares.  Subclause (c) further provides that Ho King will have no assets and liabilities save for the Uniplan shares and the loans, the subsequent acquisition of Hemisphere shares, the liabilities of Ho King under a loan agreement regarding a $10 million loan to be made by Mr Ng to Ho King and the transfer of 21,333,300 shares out of the Hemisphere shares to Mr Ng to secure his loan.

49.Clause 2.1 entitles Telings to assign, transfer, mortgage etc all its rights under the Ho King agreement and its claims against any of the defendants to any independent financial institution (“Financial Institution(s)”) as Telings should in its absolute discretion decide and to assign, transfer, mortgage, discount or otherwise dispose of or deal with all securities including guarantees, indemnity, undertakings and promissory notes given in connection with the Ho King agreement to the Financial Institution(s).

50.Clause 2.2 further provides that the defendants will on demand execute in favour of the Financial Institution a share mortgage/charge over the entire issue share capital of Ho King in order to secure performance by them of their obligations under the Ho King agreement in the event of Telings exercising its rights under clause 2.1.  Clause 2.2 provides for the execution and delivery on the signing of the deed of undertaking (1) the irrevocable power of attorney in the form appearing in Appendix A and (2) the share mortgage in the form appearing in Appendix B to secure the performance of their obligations under clause 2.2.

51.As earlier noted, the existence of this side agreement (i.e. the deed of undertaking) first surfaced in Vicki Tan’s letter of 4 December 2003 to Mr Wu (§35-37above).  Its provisions are highly unusual and appear to go beyond simply providing ‘security’ for Telings.  They prevent Ho King from dealing with the 75% interest in the JV company save in exchange for 213,333,000 Hemisphere shares which it is to hold.  While no mention was made of transferring those shares to Telings, the overall effect of the deed of undertaking, the irrevocable power of attorney and share mortgage inevitably meant that total control of Ho King would be ceded to Telings.  Importantly, the deed does not appear to enable Ho King to dispose of the Hemisphere shares even for the purpose of meeting its obligation under the Ho King agreement to make payment for the 75% interest.  Nor is there any provision enabling it to raise funds to finance the purchase.  The source from which Ho King was meant to discharge its obligation(s) is not made evident.  These are features which, inevitably, must affect the true nature of the transaction and were not mentioned in the judgment.

52.Mr Chan, Mr Ho and Ho King executed an irrevocable power of attorney (which was in the form required by Appendix A to the deed of undertaking) in favour of Telings.  Clause 1 provides:

“Pursuant to the Deed of Undertaking and by way of security, each Covenantor hereby irrevocably appoints Telings ... to be his/its attorney ...:

(a)  to execute a share mortgage/charge ... over the entire issued share capital of Uniplan in favour of the Financial Institution ...”

Fred Kan & Co. drafted this indemnity.

(d) Share mortgage

53.This is in the form as provided in Appendix B to the deed of undertaking and envisages the defendants as mortgagors, such Financial Institution as selected by the plaintiff as mortgagee and Ho King as the company.  It contains a number of curious and inexplicable features.  Recital A reads:

“The Mortgagors are the beneficial owners of the entire issued share capital of the Company ...”

That, of course, is not true.  It is obvious from Schedule 2 to the Ho King agreement itself that Mr Ng had a 10% interest in the issued capital of Ho King.

54.It similarly provided that upon Telings exercising its rights under the deed of undertaking, the defendants as mortgagors “shall on demand” execute in favour of the Financial Institution(s) a share mortgage/charge over “the entire issued share capital of Uniplan in favour of the Financial Institution(s)” to secure the defendants’ obligations under the Ho King agreement.  Whether the reference to Uniplan was a typographical error for Ho King (as the plaintiff contends) appears to be immaterial given that the Uniplan shares are an asset of Ho King and control over Ho King is as good as control over all its assets.  The share mortgage further required the defendants to deliver the share certificates for the shares, duly signed transfers, duly signed letters of undertaking and authorization as well as duly signed letters of resignation to the Financial Institution(s).

(e) The loan agreement

55." id="_Ref274666552">55.                                    This loan agreement was made between Mr Ng as lender and the defendants as the borrowers of the sum of $10 million for the payment of the deposit required for the Ho King agreement.  It was a lengthy loan document and provided for the payment of interest at 4% until repayment.  A number of its provisions cry out for comment.  While the loan document emanated from a separate firm of solicitors acting for the lender, it could not have been drawn without the draftsman having detailed knowledge of the provisions not only of the Ho King agreement, but also of the deed of undertaking and the share mortgage.  The draft loan documentation was first received by Mr Ho on 10 December 2003.

56.There are provisions in the loan agreement that mirror the restrictions imposed on the activities of Ho King pending repayment of the $10 million loan.  The ‘definitions’ clause is telling in as much as it contained a definition for “Consideration Shares”, which made it clear beyond peradventure that Hemisphere would be issuing new shares in exchange for the indirect shareholding in 99% of the JV company, which shares “shall be listed for trading or dealing in AIM”.  It follows that when the Ho King agreement was executed, it was within the parties’ contemplation that Hemisphere would also be acquiring Mr Chan’s 24% interest in the JV company.  It also provided for the “Hemisphere Shares”, defined as meaning 21,333,300 shares out of the Consideration Shares when acquired, to be transferred by the defendants to the lender as security and upon default and subject to any lock-up provision, the lender was empowered to appropriate and dispose of the Hemisphere Shares.  Further tucked away in clause 12.01 was an undertaking by the defendants upon the signing of the loan agreement to pay a commitment fee of $100,000 and expenses incurred by the lender in connection with the preparation and execution of the security documents.  Pursuant to instructions issued on 19 December 2003, Ho King caused a cheque to be issued on 23 December 2003 to Cheung On Finance Ltd for $100,000 as the arrangement fee for the $10 million loan.

57.155" id="_Ref274571155">57.                                    Notwithstanding that which is recorded in the e-mail of 8 December 2003 (referred to in §39 above), nowhere in the loan documentation is there any provision for the lender to take a 10% interest in the issued share capital of Ho King in lieu of repayment of the $10 million loan.  Nor is it clear how or why Mr Ng came to be a shareholder of Ho King.

(f) The debenture

58.The loan was secured by a floating charge over the assets of Ho King.  The debenture is not mentioned in the deed of undertaking.  How it is meant to co-exist with the deed of undertaking is unclear.  These matters remain wholly unexplained and unresolved.

(g) The Deed of Indemnity

59.On 14 January 2004, Mr Bloom executed a deed of indemnity in favour of the defendants.  A draft of that indemnity had been provided to Mr Bloom on 11 December 2003: see §41 above.

(h) Reverse takeover - Hemisphere 2004.

60.The key events, as gleaned from the trial bundles and, in particular, Hemisphere’s prospectus dated 19 May 2004, were as follows.

61.Completion of the acquisition of the shares in Uniplan by Ho King took place on 27 February 2004 despite Telings’ refusal of a request to postpone completion because of a delay in the listing.  However, Telings was amenable to an extension of the payment date by three months (from 24 to 27 months from the completion date) at an increased interest rate during the three-month extension.

62.It would appear that some two weeks later, on 15 March 2004, IOL had come to some agreement in principle with Ho King and Shing Wah respectively for the acquisition of the entire issued share capital of Uniplan and of Fu Keung.  While the heads of agreement in the trial bundles are dated 15 April 2004, they are referred to as dated “15 March 2004” in a letter of 15 April 2004 from John Ho & Tsui to George Cotter of Field Fisher Waterhouse, who acted for Hemisphere.

63.The March date is likely to be the correct date given that, shortly thereafter, on 18 March 2004, IOL and Hemisphere entered into heads of agreement for the acquisition of the entire issue share capital of Uniplan and Fu Keung to be satisfied by the allotment of and issue to IOL of 594 million ordinary shares of Hemisphere which reference the proposed share swaps with IOL.  The IOL-Hemisphere heads of agreement was conditional, inter alia, on shareholder approval and the re-admission of the entire issued share capital of Hemisphere following the acquisition to trading on AIM and the completion of share swaps between IOL and Ho King for the Uniplan shares and between Shing Wah and IOL for the entire issued share capital of Fu Keung.  Under the share swap arrangements, Ho King would acquire 36% of IOL and Shing Wah 34%.  Completion was conditional on the completion of the heads of agreement between IOL and Hemisphere.  It is not clear who held the remaining 30% of IOL, although part of it undoubtedly was held by parties related to the defendants.

64.Hemisphere announced on 19 May 2004 that it had conditionally agreed to purchase the entire issued share capital of Uniplan and Fu Keung from IOL for a consideration of £35.64 million, such purchase to be satisfied entirely by the issue of 594 million New Ordinary Shares at 6p per share.  (Although the nominal value of the new shares appear to have changed from 5p to 6p, equally this did not appear to affect the number of shares to which Ho King would be entitled.)  Since the transaction would result in a change of control, constituting a reverse takeover, shareholder approval at an EGM would be required.  Conditional upon those resolutions being passed, it was expected that dealings in the enlarged share capital would commence on 15 June 2004.  The prospectus also disclosed that, inter alia, Ho King had agreed to a lock-in period of 12 months from the date of admission and that the takeover panel had agreed to waive the obligation for the Concert Party to make a general offer to Hemisphere shareholders under rule 9 of the City Code.

65.While the e-mail of 3 June 2004 from Mr Bloom to Mr Ho might suggest that the reverse takeover had been completed as at that date, on the probabilities this is unlikely given the timetable set out in the prospectus.  The EGM was scheduled for 14 June 2004, with completion of the acquisition on 15 June and for dealing to commence in the enlarged shareholding on that day.

66.Following the successful reverse listing, Ho King accordingly became entitled to 28.39% of Hemisphere’s share capital exclusive of the shares (representing 3.15% of Hemisphere’s share capital) to be transferred to Mr Ng under the loan agreement.  While Mr Yin (who appeared for the plaintiff) has made much of the fact that, as a result of a reverse takeover, Telings’ 75% interest in the JV company translated into a holding of approximately only 28% of Hemisphere, the plain fact is that control of the listed vehicle through a majority shareholding was not a feature either of the IOL scheme or of the Ho King transaction.  In my view, what is far more significant is that the number of Hemisphere shares to be transferred to Mr Ng as a result of the reverse listing corresponded exactly to the number stated in the loan agreement of 21,333,300 shares and that the aggregate number of shares to which Ho King was entitled, including what was to be transferred to Mr Ng, corresponded exactly to the number of Hemishpere shares mentioned in clause 1.1(a) of the deed of undertaking: see §48 above.  Beyond that, it is not insignificant that a 28% interest in Hemisphere has the advantage of being a sizeable holding without triggering the requirement to make a general offer under the City Code, which would be necessitated by a holding of 30% or over.

67.In other words, this outcome had been planned and/or contemplated by the parties at the time of the Ho King transaction and could not have taken anyone by surprise.  The fact that the defendants and parties related to them also benefited by receiving a piece of the action is neither here nor there.  It is worth further emphasising that, unlike the Eurocity scheme, a controlling interest in the listed vehicle was not a feature, much less a condition, either of the IOL scheme or of the Ho King transaction.

68.Broadly speaking, the Ho King transaction was in essence the IOL scheme with an additional step interposed, namely the sale and purchase of the Uniplan shares to Ho King before the share swap with IOL.

(i) Post-reverse listing events

69.The judge dealt with those events in §§40 to 46 of his judgment.  He quoted passages from e-mails exchanged between Mr Ho and Mr Bloom between 24 June 2004 and 11 March 2005.  They related to the payment of (1) the first interest payment of £15,000 on the $10 million loan due on 15 June 2004, (2) interest of approximately £190,000 due to Telings by mid-August, (3) interest payments due 20 November 2004 for approximately HK$200,000 (on the $10 million loan) and 27 February 2004 for HK$2.62 million due to Telings.  On the 11 March 2005, Mr Ho’s firm paid interest of $26,200 for the three months’ extension relating to the Ho King agreement.

70.To complete the chronology, the defendants issued a writ against Mr Bloom on 18 July 2005 seeking reimbursement of funds said to have been paid on behalf of Mr Bloom in relation to the Ho King transaction.  This claim was settled in October 2006.

The judgment below

71.The judge seems to have rejected the defence largely on the basis that it was inconsistent with the defendants shouldering the payment of various sums pursuant to the Ho King agreement and the post-15 June 2004 e-mails/correspondence referred to in §§40 to 46 of his judgment.  But any inconsistency needs to be contextualized and in my view this cannot be done without analyzing the Ho King transaction which, on any view, is convoluted in addition to being less than straight forward and on occasion begs as many questions as it answers.

72.Nevertheless, the judge felt able to conclude (at §74):

“in the absence of sufficient evidential basis to contradict it, the Ho King Agreement (and the related contractual documents) should be given the evidential weight which it deserves as a solemn document.”

This appeal

73.Mr Grossman SC who appeared for the defendants submitted that based on the documents alone, this appeal ought to be allowed.  He relied heavily on the deed of undertaking which, it was submitted, prevented the defendants from enjoying or exercising any rights over the Uniplan shares and which enabled Mr Tan to retain control over Uniplan’s issued share capital.

74.This case is highly unusual both for the absence of relevant factual findings notwithstanding disputed facts together with the absence of any oral evidence from the plaintiff. I have alluded to the unanswered questions that the documentation raises and the various drafting deficiencies which are unexplained within the chronology. It will have become apparent that in evaluating the Ho King agreement and the related contractual documents, the judge did not address, inter alia, the matters raised in §§27, 31, 46, 51, 53, 54, 57, 58, 63, 66, 67 and 68 above.

75.Further, Part 8 of the Hemisphere prospectus contains a valuation report prepared by Vigers.  It shows the open market value of the property (owned by the JV company) “in its existing state” as at 15 March 2004 at RMB705 million.  Although the Ho King agreement was executed three months earlier, it is unlikely that the value at that date would have been significantly different, which means that the plaintiff’s 75% interest would represent a value of over RMB500 million.  Nonetheless, apparently it was willing to part with this interest to a purchaser known to have no financial means for the considerable sum of HK$141 million, with payment of $131 million to be deferred for more than 2 years.  However it be regarded, this makes no commercial sense whatever.  In fact, if the transaction were a genuine sale and purchase agreement, it would have been little short of a ‘fire’ sale, when no discernible reason for such a sale emerges from the papers.

76.That leads to another matter that has not been the subject of any attention.  This is the management and operation of the JV company (engaged in property development) pending payment for the Uniplan shares.  Prior to the Ho King agreement, being the 75% owner of the JV company, the Tans were in control.  Even after the Ho King agreement, given the deed of undertaking and the deferred payment date for the Uniplan shares, they remained in control, at least until the reverse takeover.

77.After the reverse listing, the new board of Hemisphere consisting of seven directors would have been in control, but the directors included the defendants, Mr Bloom and Mr Zhan representing the PRC interest of 1% in the JV company.  Therefore, whether the reverse listing made any practical difference in corporate governance is highly debatable but, again, is not a matter that has been addressed.

78.I turn now to consider the question of the effect of the plaintiff failing to call any witnesses.  In his written submissions, Mr Yin took the bold stance that

“[n]o adverse inference could be drawn from the fact that the witnesses were not called. If the witness is not called, these statements are simply disregarded.”

79.I cannot accept Mr Yin’s submission.  It is contrary to the well-established maxim, omnia praesumunter contra spoliatorem, sometimes referred to as the principle in Armory v Delamirie (1722) 1 Str 505.  In Hong Kong and Shanghai Banking Corporation v Chan Yiu Wah [1988] 1 HKLR 457, Fuad JA expounded that principle (at 467).  That passage is quoted in full in my judgment in Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKC 713 at 723B-E:

“ 285. Failure to produce evidence, as indicating unfavorable tenor of evidence: (1) In general. … The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavorable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which make some other hypothesis a more natural one than the party’s fear of exposure. But the propriety of such an inference in general is not doubted.

[Armory v. Delamirie] this has been a recognised principle.”

See also Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434 at 443I-444B.

80.While the judge referred (at §73) to

“the practice that where a litigant chooses not to call evidence, the court is entitled to be bold and can draw from the facts or reasonable inferences as to what facts may have been withheld”

and professed to have borne that in mind, it would appear that he did not find it necessary to apply the maxim by reason of his rejection of the testimony of the defence witnesses.

81.However, in thus rejecting the testimony of the defendants, the judge appears to have evaluated their evidence in isolation, without weighing it against any reasonable adverse inference to be drawn from the failure of the plaintiff to call any oral evidence on any particular matter or issue.  Using what appears to be a broad brush approach, the judge simply rejected the defendants’ evidence in its entirety.  In a case such as this, where the plaintiff has failed to call relevant witnesses to give evidence notwithstanding the highly complex and at times wholly unexplained factual backdrop, such an approach serves to emasculate the evidential maxim and cannot be correct.  In my view, every reasonable inference adverse to the plaintiff and in favour of the defendants should be drawn in determining each and every disputed fact.

Conclusion

82.Having regard to the matters set out above, it is clear that the order below cannot stand.  However, that is not the end of the matter.  In the absence of material findings of fact, regrettably this court is not in a position fairly to decide the merits of the plaintiff’s claim or of the defence.  In my view, much as it is undesirable, a retrial therefore is unavoidable.

83.Accordingly, I would order that this appeal be allowed, that the judgment below set aside and that there be a retrial of this action before a different judge.  I would also make an order nisi of costs of this appeal to the defendants, with the costs of the trial to be in the costs of the retrial.

Hon Stone J:

84.I agree with the judgment of Le Pichon JA.  In deference to the fact that we are overturning the trial judge on that which primarily is an issue of fact I wish to add a few words of my own.

85.It strikes me that in his treatment of this case the learned judge below may have yielded to the understandable temptation, in face of a highly complex factual matrix (and a very considerable amount of commercial documentation/boilerplate), to over-simplify and to adopt that which her Ladyship aptly has described (at paragraph 81 above) as “a broad brush approach.”

86.There may be many occasions when such a ‘macro view’ is not only welcome but fully justified, and a potentially difficult factual dispute is susceptible to ready resolution simply by identification of a salient underlying point.

87.In my judgment that is not the situation here.

88.Viewed in the round, this is a case wherein the 1^st and 2^nd defendants, who are sued on a guarantee which they executed regarding this particular share purchase, allege that the ‘Ho King agreement’ never was intended to be performed, and thus that this is a transaction which is not as it has been made to appear on the face of the relevant documentation – the reason for this being the potential problem posed by any disclosure of the involvement of Mr George Tan, thereby necessitating the concealing/obscuring of this fact lest the London Stock Exchange regulators, charged with ‘vetting’ putative new listings, would have been able to assess the true factual position, and (it was so assumed), thereby inevitably would decline consent so to list.

89.Accordingly, when placed within the correct factual context, it might be thought surprising that the learned judge saw fit to disbelieve the evidence of the five witnesses who came forward to give viva voce evidence on behalf of the defendants (“…the testimony of the defence witnesses has either been rejected or given no (or little) evidential weight”), and instead chose to found his judgment in favour of the plaintiff – on behalf of which pointedly no viva voce evidence was led notwithstanding the existence of witness statements prepared for Mr Tan, a director of the plaintiff company, and of his daughter, Vicki Tan – on the ground (see paragraph 74 of the judgment) that :

“…in the absence of sufficient evidential basis to contradict it, the Ho King Agreement (and the related contractual documents) should be given the evidential weight which it deserves as a solemn document”.

90.With respect, I am unable to divine precisely what the phrase “a solemn document” is meant to import or convey in a situation such as the present.  Serious commercial documents utilized in significant commercial transactions hardly can be regarded as other than ‘solemn’, yet this does not necessarily mean that they should be accepted at face-value when the factual matrix which spawned such document is as complex (and potentially as revealing) as undoubtedly is the position in this particular case.

91.To the contrary.  As her Ladyship has demonstrated in her meticulous and detailed historical analysis involving no less than four previous schemes, this ‘Ho King agreement’, the fifth in the sequence, when placed in context of the previous unsuccessful attempts to achieve the reverse listing which ‘Uncle’ George Tan (to borrow the sobriquet adopted by one of the witnesses for the defendants) so obviously desired, tends to beg as many questions as it answers.

92.Yet the hard fact is that the very progenitors of this arrangement demonstrated that they were not prepared to go into the witness box in order to respond to the multiplicity of queries which would have been available to defence counsel who had had the opportunity to study the provenance of the Ho King agreement, and thereby to have the opportunity to establish that it was not the position, as the learned judge (at paragraph 75(1) expressly found, that this was “a genuine sale and purchase (of the Uniplan shares by Telings to Ho King”), and that as a consequence the defendants were in breach of their related personal guarantees.

93.I agree entirely with her Ladyship’s observations (at paragraph 78 et seq) arising from the failure of the plaintiff’s putative witnesses to give evidence.  It is well-established that in such circumstances the court is entitled to draw such reasonable inferences as it may from the facts as established, and more particularly, from such facts as “may have been withheld”, and wherein highly salient questions otherwise arising from the face of the available documentation positively demand answers and/or clarification.

94.It seems to me that an understanding and, more importantly, proper evidential testing of the detailed history leading up to the ‘Ho King agreement’ and its provenance, is and was essential to decide this case, and to arrive at an informed view as to the commercial probability and residual merit of the defence case.

95.Regrettably, however, the plaintiff ensured that the opportunity for such evidential testing did not occur, and in the circumstances it seems to me to be highly problematic to uphold the conclusion(s) as reached by the learned trial judge, notwithstanding the standard mind-set of an appellate court to the effect that it is difficult indeed to interfere with a primarily fact-based judgment by the ‘seeing and hearing’ judge at first instance.

96.In this regard I have considerable sympathy with Mr Grossmann’s submission – within the context of Ground 4 of his Notice of Appeal – that it was vitally important for the learned judge to have made a finding as to the reason(s) for the failure of the previous efforts at reverse listing prior to the failure of the Ho King agreement, precisely because it was (and remains) the defendants’ unflinching case that the Ho King agreement evolved from, and was thought to be a significant improvement upon, Mr Tan’s past attempts to achieve his aim, namely to effect the listing of his LITBC shares.

97.It follows that in my view it is simply not possible fairly to let this result stand, and I confess that at the end of the day my principal area of concern in this appeal was whether to accede to Mr Grossmann’s persuasive invitation to go ‘the whole hog’, to set the judgment below aside, and to enter judgment for the defendants.

98.After a good deal of mental wrestling, however, I have come to the conclusion that, whilst tempting, this would be inappropriate and ultimately cannot be justified, and that the correct course in the circumstances indeed is that proposed by Le Pichon JA, namely that the Order of the court below be set aside, and that there be a retrial of this cause before another judge of the High Court.

99.It follows from this that I also concur with her Ladyship’s order nisi as to costs.

Hon Bharwaney J:

100.I agree with the judgments of Le Pichon JA and Stone J and with the orders proposed.

Hon Le Pichon JA:

101.Accordingly, there will be an order in terms of §83 above.

Mr Michael Yin and Mr Isaac Chan, instructed by Messrs Yu Tsang & Loong, for the Plaintiff/Respondent

Mr Clive Grossman SC, Ms Lisa Remedios and Mr Jose Remedios, instructed by Messrs John Ku & Co., for the 1^st and 2^nd Defendants/Appellants