Leung Ping Shing Roger v. Lee Kwok Kei
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HCA778/2007 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 778 OF 2007 --------------------------- BETWEEN
--------------------------- Before : Mr Recorder Shieh, SC in Court Dates of Hearing : 1, 6-9 and 30 September 2010 Date of Judgment : 16 June 2011 ------------------------ J U D G M E N T ------------------------ 1.This action concerns an agreement between the plaintiff (“Leung”) and the defendant (“Lee”). THE BACKGROUND FACTS 2.The National Housing Authority (“NHA”)of Thailand was a governmental authority responsible for, insofar as relevant to this action, low cost housing in Thailand. 3.In order to provide such low cost housing, it implemented the Eua-Are-Thon Housing Programme (“the Programme”)whereby developers were invited to apply and participate in. 4.Leung claimed that he was a promoter of more than 30 years experience. During the course of the evidence there were also references to the fact that he had previously worked for entities within the Swire Group. Leung produced a lot of name cards during the course of his evidence and he talked a lot about his various projects. He also made constant references to business and accounting jargons. There is no documentary evidence of Leung’s employment history or business background. There is no need for me to make any specific findings about his business or employment background, save to find that he had some knowledge of business affairs and business jargons and also that in his dealings with Lee he had portrayed himself as someone with vast business experience. 5.By a letter dated 11 March 2005, the Governor of NHA thanked Leung for his intent on contracting to build 60,000 housing units under the Programme. The letter was presented to Leung by the Governor on 11 March 2005 in what appeared to be a signing ceremony. At trial, Leung produced two photographs (taken on 11 March 2005). One of them showed the Governor of NHA presenting the 11 March 2005 letter to Leung. The other one showed a group of people with the Governor. They were Leung himself, his wife, a man called Chupon (who, according to Leung, was the Governor’s classmate), Kenny Lau (a staff member of a company called Free Form Construction Company Limited “Free Form” – more about this company later), a man called Chu Hau (again, more about him later) and a man called Dilip Valiramani (“Dilip”). Despite the apparent pomp and circumstance surrounding the occasion, Leung’s evidence was that anyone could express an interest in the Programme and fix an appointment to see the Governor. 6.In March or April 2005 (the precise month as well as the location are in dispute but I do not think it is necessary for me to resolve this). Leung was introduced to Lee by his friend Chu Hau (referred to above). Chu Hau was at that time a contractor of Free Form. Free Form was Lee’s former employer. Lee was a construction engineer. 7.Leung and Lee negotiated the terms of a possible agreement between them in relation to participation in the NHA. The parties are in disagreement as to the type of co-operation that they would undertake. What is not in dispute is that they had signed a written agreement in Chinese (“the Agreement”) dated 11 May 2005. By the Agreement, Leung and Lee agreed to co-operate in the construction of residential houses in Thailand (“the Project”) on the terms set out in the Agreement. 8.Pursuant to the Agreement, Lee paid a total of US$400,000 to Leung and a company known as DRC Real Estate Development Ltd (“DRC”) as follows :
9.DRC was registered in Thailand on or about 29 June 2005. The documents show that at the time of incorporation Lee was a shareholder as to 8,000 shares and he was also a director. Leung was a shareholder as to 22,000 shares and his wife was a shareholder as to 6,999 shares. 10.Disputes had arisen between Leung and Lee. Certain criminal proceedings were instituted in Thailand at the instigation of Lee. There was a complaint by Lee to the Thai police dated 5 April 2006. There is evidence that Leung had attended a police interview in Thailand in November 2006. Shortly after that, Leung began taking action against Lee in Hong Kong by way of his former solicitors’ letter dated 16 December 2006 (see below). 11.The Thai proceedings (and there appeared to be two sets of such proceedings, one conducted by the public prosecutor and one initiated by Lee as some sort of “private prosecution”) had not resulted in any conviction or acquittal. It would also appear that a warrant of arrest had been issued against Leung and he had left Thailand. Leung has admitted that he would not go back to Thailand yet because once he went, he would have to be put on bail and he would not necessarily be able to come back to Hong Kong to deal with this action. 12.No expert evidence has been presented before me as to the significance of the various steps involved under the legal procedure in Thailand, and I do not intend to dwell too long on the Thai proceedings because they have no direct relevance to the Hong Kong proceedings, save to provide some background to the commencement of this action, in that Lee alleges that the current action was only a “reaction” to the criminal complaint made by Lee in Thailand. 13.I now come back to Leung’s case in this action. His case is that Lee has been in breach of the Agreement in such a way as to justify termination of the Agreement by Leung. By a letter dated 18 December 2006, Leung’s former lawyers, Or & Partners, terminated the Agreement on two bases, namely that in breach of clauses 7 and 8 of the Agreement :
14.Clauses 7 and 8 of the Agreement are in the following terms :
15.Leung claims that as a result of Lee’s default and the termination of the Agreement, he has suffered loss and damage by way of numerous alleged items of expenditure which have been set out in his Statement of Claim. After giving credit to the amount of US$400,000 paid by Lee to Leung, Leung’s claim amounts to US$791,357.72. 16.As the case developed, Leung changed his case in terms of the clauses he relied on. He no longer relied on clause 8, but references were then made by him to clauses 10 and 11. Leung acted in person at trial. I allowed him considerable leeway in relying on these additional clauses in the course of the trial. He was given leave to amend his Statement of Claim on 30 September 2010 to rely on those two additional clauses. 17.By way of defence (which was re-re-amended during closing submissions), Lee denies that he has been in breach of the Agreement. Lee contends that :
18.Apart from denying liability. Lee also counterclaims against Leung for the return of the US$400,000 that he had paid to Leung and claims that Leung held the funds on trust, on the basis that a Quistclose trust had arisen on the facts, or that the Agreement had been induced by Leung’s fraudulent misrepresentation and that he had rescinded the Agreement. THE ISSUES 19.Part of the arguments of Lee focused on whether Leung was under a duty to cause DRC to lodge the requisite application with NHA even without receiving the “track record” and “financial proof” from Lee. On Lee’s argument, an application could have been made to the NHA in respect of the Programme even in the absence of any documents about “track record” or financial proof and the duty to procure such application existed as soon as the Agreement was signed although the exact time for Leung to comply with this duty was to be determined (Lee’s closing at paragraph 32). From this, Lee argued that Leung was in breach of this implied duty under the Agreement in failing to make any application to the NHA. 20.I am not convinced that it is a correct way to approach this case by focusing on whether Leung had somehow been in breach of some implied duty under the Agreement. This is a claim by Leung against Lee for breach of Lee’s duties. The starting point should, in my view, be on Leung’s case as to Lee’s breach of duty. If Leung cannot articulate a duty under the Agreement which has been breached by Lee, then that is the end of the matter as far as Leung’s case is concerned. Any breach of duty by Leung may or may not be the subject of a counterclaim by Lee, but that is a separate matter. And in this case even though Lee does plead a counterclaim, the counterclaim was based a Quistclose trust or on the alleged fraud of Leung and not based on the alleged breach by Leung of any contractual duty (arising out of any alleged implied term) to procure DRC to apply to the NHA. 21.In my view, therefore, the following are the relevant issues in this case :
DISCUSSION Whether demand necessary 22.This is a matter of construction of the Agreement. It is trite that a contract cannot be construed in the abstract, but has to be construed against the factual matrix. The law on factual matrix is too well known to warrant elaborate citation in this judgment, and I would simply refer to the well known cases of ICS v West Bromwich Building Society [1998] 1 WLR 896 and Jumbo King Ltd v Faithful Properties (1999) 2 HKCFAR 279. Put shortly, the meaning of a contract is to be ascertained against the background of all facts as are reasonably available to the parties at the time of contracting, but excluding (i) evidence of subjective intent and (ii) evidence of prior negotiations. 23.The following points about the Agreement, the Programme and the Project should be noted. 24.Under the requirements of the Thai government, if a foreigner wished to participate in the Programme, the foreigner had to co-operate with a Thai national and form a consortium (or joint venture) who would make an application to the NHA. 25.Under the Agreement, the application to the NHA was to be made by the joint venture vehicle, in this case DRC. 26.In order to satisfy the NHA that the applicant (in this case DRC) had the necessary ability to construct the houses, certain information had to be submitted to NHA. Relevantly, such information consisted of the “track record” of an overseas contractor as well as proof of financial ability (to complete the construction work in question). Clause 7 of the Agreement dealt with such requirement. It placed the obligation on Lee to provide such materials, but one of the relevant issues is when such materials had to be provided. 27.In the context of this Agreement, it was not contemplated that the contractor whose “track record” had to be supplied by Lee was the actual contractor who was going to perform the construction work in Thailand. This is borne out by the wording of clause 10 of the Agreement which provided as follows :
28.Under clause 10 it was clearly contemplated and provided that the “contractor” whose “track record” (and “financial proof”) was to be supplied by Lee was not to be involved in the business of DRC or in the construction operations of DRC. To use the language of clause 10, its track record and proof of its financial ability was to be “lent to” (or “borrowed by”) Lee for the purpose of being provided to DRC for DRC to submit to NHA. Lee was to ‘borrow’ such track records and financial proof from an overseas contractor and the “price” (capped at US$100,000) would be counted as part of the funds injected by Lee into the Project and to be returned to Lee later as part of his “investment returns”. 29.By announcements of the NHA dated 14 and 19 October 2005, the deadline for submission of applications in respect of the Programme was declared to be 25 November 2005. It is not in dispute that no application has been submitted by DRC to the NHA, whether prior to 25 November 205 or at all. 30.Against the above background, I now turn to the question of when the obligation to provide track record and financial proof arose under clause 7 of the Agreement. 31.Clause 7 expressly places the obligation to provide track record and financial proof on Lee. It was silent on when they had to be provided. 32.Nowhere in his Statement of Claim has Leung pleaded when the duty to provide financial proof and track record arose. Logically this must be the first question to address, for if the time for Lee’s performance has not, or not yet, arisen, no question of breach can arise. 33.While Leung has not pleaded (and has not applied for leave to amend his Statement of Claim to plead) when the duty arose, during his cross-examination he switched between several possibilities : at one time he said that they had to be provided before DRC was set up; then he said they should be provided not later than the formation of DRC. Then he referred to clause 12 of the Agreement and said that there could be a few days of grace period. Then he said that Lee was already in breach in July 2005 because DRC was formed on 29 June 2005. 34.On the part of Lee, by way of re-re-amendment to the Defence and Counterclaim (at paragraph 1C) made at the stage of closing submissions, Lee contended that any duty to provide track record and proof of funds only arose upon demand by Leung. Leung opposed the amendment. I appreciate that the amendment was sought late, but I nonetheless gave leave for Lee to do so in the exercise of my discretion. The brief reasons are as follows :
35.I now turn to the various possible candidates for when the duty arose. 36.I first reject any suggestion that the duty arose immediately. The Agreement contemplated that Lee had to go to “borrow” track records and financial proof from another contractor and that would necessarily take time. At the time of the Agreement, DRC has not even been set up. There is no evidence of any urgency, as at the time of signing the Agreement, for requiring these materials. For what it is worth, Leung said under cross-examination that at the time of the Agreement the parties did not know that the deadline would be in November 2005. He did not say that at the time of the Agreement the parties were aware of any, earlier, deadline which called for immediate supply of these materials by Lee. 37.I also reject any suggestion that the time for provision of the documents could be linked to the time when DRC was eventually set up. There was no necessary correlation between (i) the time when DRC was set up and (ii) the time when the materials were needed or required. 38.It may well be said that the duty was to provide those materials within a reasonable time. “Reasonable time” is a well known creature in the law but one must resist the temptation to take refuge in this concept in every case. One cannot decide the question of reasonableness in the abstract and there is nothing in this case which could provide any guidance with which to decide what would be a reasonable time. Leung has not put his case in this manner, in any event. 39.In my view the most reasonable and natural conclusion is that Lee’s duty only arose upon demand by Leung. I say so for a number of reasons. 40.Clause 7 contemplates that the track record and financial proof were to be provided in order that DRC could submit them to the NHA. Prima facie, therefore, there was a linkage with the time for applying to the NHA. 41.Under the Agreement, as between Leung and Lee, Leung was the person who was going to procure the incorporation/registration of DRC in Thailand (clause 3). As between Leung and Lee, it was Leung who (under clause 5) was responsible for forming DRC with a Thai national. 42.Further, as between Leung and Lee, Leung was in fact the one who has had direct contact with the NHA and obtained a letter of invitation from the Governor. 43.In this connection there is a factual issue to be resolved. Leung has contended, in his oral evidence, that he was not the one who “took the lead” in the Project. He said that it was actually Lee (and one Au Sui Cheong – more about him below) who wished to obtain a contract from the NHA and he was simply helping them out. He also denied that Lee’s role was one of an “investor” in the Project initiated by him. He tried to create the impression that Lee and Au were really “in the driving seat” in respect of the Project and as far as he was concerned, he was the person making available DRC as a “shell”. At one time he even went so far as to suggest that it was not for him or DRC to procure a contractor to undertake actual construction work and that it was up to Lee to do so. 44.Leung’s case as to the mode of profit-making has been confusing. At one time he suggested that Lee would be arranging for contractors to do the work and he would make his profits via some complicated and convoluted routes. Later, however, he changed his evidence and appeared to accept that Lee need not procure or find any contractor to do the work. 45.Lee, on the other hand, maintained that his role was one of an investor in the sense that he would pay his share of the investment (US$400,000) and then expect to receive returns in accordance with what was provided in the Agreement. He was not supposed to procure contractors to do the actual construction. He would, however, go to Thailand for the purpose of supervising the work carried out by the contractor. 46.This is largely a question of construction but part of it may hinge on the credibility of the witnesses. At this stage of the judgment, therefore, I wish to make some preliminary comments about the credibility of the key witnesses namely Leung and Lee. I have no hesitation in saying that Leung was a most unimpressive witness. I will have more to say about the details later, but suffice it to say at this juncture that his testimony is often contrary to common sense and the contemporaneous documentation. He could swear to the contrary even in the face of clear, incontrovertible documents against him. The reasons or excuses that he gave are often, frankly, laughable and an insult to my intelligence. I will be giving more specific (but non exhaustive) examples of the unsatisfactory (and, at times, absurd) nature of his evidence in the context of specific topics below. My view of the credibility his evidence is based on my assessment of the totality of his evidence as a whole. 47.Lee, on the other hand, was by and large a straightforward witness. His evidence was down-to-earth, generally supported by the contemporaneous documentation and in line with common sense. I will be making specific findings of fact below on matters that I regard to be more relevant to my reasoning in this judgment but, for the avoidance of doubt, where there is a conflict between the testimony of Lee and Leung on facts or issues that I have not specifically or expressly dealt with, I prefer that of Lee over Leung. 48.Lee has also called an extra witness, Mr Au Sui Cheong (“Au”). Au was a director and the General Manager of Free Form. For reasons that I shall explain later, I do not find his evidence particularly relevant or probative in resolving the issues in the present case. 49.I accept Lee’s evidence that his involvement was that of an investor in the sense that he would inject funds and then receive returns in accordance with the provisions of the Agreement and that he was not the person who was responsible for carrying out (or procuring contractors to carry out) the construction works. His role, in terms of the construction works, was to be limited to supervising the works. This is in line with a proper construction of clause 4 (dealing with the rate of “return” – 6% per house at the unit cost of USD250,000 per house) and clause 8 (dealing with Lee’s supervision role) of the Agreement. I have set out clause 8 above already. Clause 4 provides as follows :
50.There are some uncertain features in the drafting of clauses 4 and 8 such as how the mechanism of retention of Lee’s due share of profits was going to operated, but I do not think that it detracts from my conclusion that Lee was in the position of an investor. This is not an action by Lee for the “returns” under the Agreement and it is not necessary to resolve the issue of construction as to precisely how the mechanism under clauses 4 and 8 was supposed to operate. 51.Leung’s evidence, on the other hand, is contrary to the wording of the Agreement itself and the contemporaneous documentation. For example, in clauses 4, 6 and 11 of the Agreement the express language of “investment” was used. Clauses 6 and 11 provide as follows :
52.Leung’s only answer was that those wording were all wrong. However, there was no claim for rectification and his suggestion that those provisions were “wrong” had not been foreshadowed in his witness statement. There was also no proper or convincing explanation as to why he would sign something that was wrong. Also, subsequent e-mail correspondence (which I will deal with in greater detail below) shows that Lee was looking to him for guidance and information in relation to the Project such that Leung was plainly (and plainly regarded as) being the leader in the Project. 53.Further, clause 3 of the Agreement provides as follows :
54.It was Leung who would procure DRC to apply to build 30,000 houses and then to allocate 10,000 of these houses to Lee. This is consistent with Leung taking the lead in the scheme and asking Lee to “join in” as an investor and not consistent with Leung’s suggestion namely that it was Lee who wished to pursue the construction of houses and Leung was only making DRC available as a “shell”. 55.I therefore find that as between Lee and Leung, Leung was the person who was taking the lead in the Project and he would be the person deciding when an application would be submitted to the NHA. He would be privy to the detailed requirements as to the matters to be submitted to the NHA such as the contents, format and scope of such materials. It would be unreasonable to expect Lee to be under a legal duty to provide such information to Leung without having first been told by Leung as to when and as to their format. 56.I therefore hold that under clause 7, Lee’s obligation was to provide the financial information and track record to Leung only upon request or demand. Such request or demand could be oral or in writing, but there had to be such a request or demand before the obligation could be triggered. 57.Alternatively (and insofar as it is necessary) I also find that there is an implied term to this effect, as a matter of obvious implication. 58.I pause here to note that Leung has disclaimed any reliance on clause 8 of the Agreement. I shall therefore not deal with it. WHETHER DEMAND IN FACT MADE 59.I then turn to the question of whether Leung had ever made any requests or demand to Lee for such track record or financial proof. Leung said he had; Lee said Leung had not. On Lee’s evidence, he had (upon seeing the NHA’s announcements dated 14 and 19 October 2005 about the deadline for submission of applications for the Programme) asked Leung about the Project and Leung had assured him that he (i.e. Leung) would be able to secure NHA’s approval of the Project even if the application was late and that Lee need not worry about it. 60.There is no evidence of any written demand/request before the Court. However, in his oral evidence Leung asserted that he did chase Lee by e-mail to supply the materials but that he was unable to access his e-mails while he is in Hong Kong. There was also a reference to his computer having somehow “exploded” (I take that to mean, not that his computer had physically exploded but that his inbox was “full”). I do not understand why any of these reasons could be good explanations for his inability to produce documentary evidence of any e-mail demands. Access to one’s e-mails cannot depend on which country or region one is physically located, and the fact that one’s inbox might have been full does not and should not prevent one from retrieving one’s old e-mails. Leung has not satisfactorily explained the lack of evidence of any written request and I find that Leung had not made any written requests or demands to Lee. 61.That of course is not the end of the matter because, as I have said above, such requests or demands could be oral. 62.This is an issue of fact which I have to resolve. I therefore have to assess the relative credibility of Leung and Lee. I have already expressed some comments above. I now discuss the question in greater detail. I have reminded myself that in assessing oral evidence, one should test the evidence against inherent probabilities and incontrovertible facts or documentation. Demeanour may be resorted to, but has to be treated with caution. 63.I first comment on Leung’s evidence. 64.Leung claimed that he was a person with many years of experience as a promoter of businesses. His evidence is full of high sounding proclaimations as to his ethics of doing business. He also referred to a lot of business and accounting jargons from time to time. Having listened to his evidence and observed his performance in the witness box, I have come to the firm and clear conclusion that he was a thoroughly unimpressive and incredible witness. 65.Despite that fact that he is close to 80 years old, he struck me as a mentally astute, shrewd and sharp individual. Old age certainly played no part in contributing to the unimpressive and unsatisfactory nature of his evidence. 66.He answered simple questions by rambling speeches full of irrelevant details. On a few occasions I had to ask him to tell me what the question was so as to keep him “on track”. He would also pepper his evidence with references to quotes from Chinese literature and Chinese historical texts which had absolutely nothing to do with the issues. I am of course aware that this could very often be attributable to one’s innate character and personality and may not necessarily reflect on credibility. However, having considered the totality of the oral and documentary evidence together with my close observation of Leung during the course of the whole trial, I have come to the firm view that he knew full well what the disputes and issues were and that Leung had resorted to filibustering and long-winded and irrelevant answers in order to “fend off” difficult questions, in the hope that if he utters a sufficiently long answer, padded up by ostensibly respectable and technical jargons and irrelevant quotations, delivered in high speed, he could bamboozle his evidence through and that shortcomings in his evidence would not be “caught out”. He has failed miserably. 67.His evidence is often contrary to the contemporaneous documents. When confronted with such inconsistencies, he would resort to the most extraordinary excuses which were wholly unbelievable and absurd (I will give some examples below). 68.Leung sometimes spoke with a sense of authority and suaveness which could easily persuade the less well-informed. A very telling example is his attempt (I shall deal with this in greater detail below when I deal with the fraud allegation) to say that Lee had signed a document in Thailand which had stated the fact that DRC only had a registered capital of 10,000,000 Thai Baht and so Lee should know right at the outset that DRC did not have a registered capital of 120,000,000 Thai Baht as envisaged by the Agreement. He was unable to produce such a document to support his assertion. Lee recalled that he might have signed a document when he joined the board of DRC but it was all in Thai but he was not clear whether he had signed anything about share capital. For present purposes, however, the relevant point is that Leung said that the requirement in Thailand was exactly the same as the rule in Hong Kong namely that all shareholders had to sign on a document which set out the amount of registered capital and so Lee must have known what the registered capital of DRC was. There is no evidence of Thai law before me, but I know that under Hong Kong law there is no requirement that when a limited company was set up, all shareholders had to sign a document containing information about the registered capital of the company. The fact that Leung could see fit to make such an incorrect statement with a straight face demonstrates the extent to which he was prepared to exaggerate (and do so in an ostensibly authoritative manner) whenever it suited his purpose. 69.The contemporaneous documentary evidence is wholly inconsistent with Leung having made any sort of demand or request to Lee to present or produce the track record or financial proof. In particular, when confronted by a number of e-mails in late 2005, he was completely unable to explain them away satisfactorily. 70.A number of points arose out of these e-mails. On a high level of generality, these e-mails evidenced what Leung had told Lee about the state of progress of the project and what Lee’s concerns were. There was no sign that Lee was in any way concerned by his “failure” to provide the track records and financial proof to Leung. Had Lee received any requests or demands from Leung to provide track record and financial proof and if he had failed to do so in breach of clause 7, it would be most odd for Lee to still write to Leung to talk about his own concerns. More importantly, there was no reply or indication whatsoever from Leung that Lee has been in breach of clause 7 by not providing track record and financial proof. 71.For example, in an e-mail dated 17 November 2005 from Lee to Leung, Lee referred to the announcements of the NHA dated 14 and 19 October 2005 (which, as will be recalled, mentioned the deadline of 25 November 2005) and asked whether they would affect the profit implication of the Project and whether there would be any further delay for the submission of the proposal. The whole tenor of the e-mail was inconsistent with someone who was already in default as a result of requests/demands by Lee to provide materials. 72.Leung had not sent anything back to Lee to disabuse Lee, or to put on record that Lee ought not to be asking questions about delay in submission because Lee himself was in breach of the clause 7 requirement to supply financial proof and track record. 73.Leung’s explanation of his failure to rebut this (and other e-mails) was astonishing. He sought to suggest that the sending of all these e-mails was a “trap” set by Lee (to pave the way for future arguments against him). However, if he had really thought that these e-mails were “traps” set by Lee to pave the way for future arguments against him, then it is all the more important for him to “set the record straight” by pointing out any misstatement of fact in the e-mails. To rebut an inaccurate statement is not a difficult thing at all. I reject Leung’s explanation as to why he had not replied to or rebutted those items of correspondence. His attempted explanation was, regrettably, pathetic and in fact a severe test on my patience. 74.Another e-mail along the same line is an e-mail dated 22 December 2005 (which was already AFTER the “official” deadline of NHA) from Lee to Leung. Apart from wishing Leung a blissful Christmas, Lee said in this email that he had been told that the contract with the NHA was going to be signed in the next couple of days and asked about the status. Lee further said that he hoped that his work in DRC could commence shortly to resolve problem. 75.The underlying premise of this e-mail was that there was nothing untoward about the Project and in fact Lee thought that Leung was about to sign a contract with NHA. If (as Leung alleged) Leung had truly chased Lee for the track record and financial proof and Lee had been in breach in not supplying them, it would have been most odd for Lee to have written this e-mail. 76.When confronted with this e-mail, Leung explained that this e-mail was a plot by Lee to pave the way to blame him (i.e. Leung) in future. He said that he had already realized that Lee was a man of no substance, and also that he did not know why he was asking these things. I have no hesitation in rejecting his outrageous explanation. In my judgment, this e-mail amply supports Lee’s evidence (and I so find) that not only had Leung not made any requests or demands for Lee to provide track record or financial proof, Leung had positively told Lee that Leung was going to sign the contract with NHA in late December 2005 and that everything was on track. Absence of track record or financial proof was not perceived or raised as a concern at all. 77.Another series of e-mail worth commenting on concerned the issue of “construction system”. To put those e-mails in context, one of the criterion of the NHA under the Programme was that the proposer should present mass production method or technology of fast and quality construction. Lee’s evidence is that Leung had told him that DRC would be using advanced construction technology from Switzerland to speed up the construction of the Project. Leung was asked in cross-examination whether DRC had approached any company for such technology. At first Leung answered in the affirmative. Then when he was challenged by the fact that he had not disclosed any documents, he said that the approaches were made in his personal capacity for other projects that he was promoting. He said that in the case of the Project, it was Lee and Au who should be responsible for procuring the relevant technology. 78.It is against the context of the above background dispute that the series of e-mail are to be examined. One of the e-mails was from Dilip (a director of DRC) to Lee dated 21 October 2005 (though the sender account appeared to be a name called “Philip Victor”) in response to an e-mail sent by Lee to Dilip dated 20 October 2005 expressing concern over the progress of the Project. In reply, Dilip gave a series of explanations and assurances to Lee. Materially, the clear impression was given that Leung was “in the lead” in the Project – he was the person to make a decision on big financial investment and the person having all the “financials”. The e-mail also referred to the fact that DRC was going to arrange the building system and get it approved by NHA first. Lee was asked to be patient. All these were plainly inconsistent with Leung’s evidence that he was not the one taking the lead in the Project, or that he was just making available DRC “as a shell” to Lee and Au for them to “run the show” or that it was up to Lee and Au to arrange for the relevant technology. 79.Dilip’s e-mail was copied to Leung but during cross-examination Leung initially denied receipt of the e-mail. Then he said that his e-mail in Thailand was [email protected] instead of [email protected] (which was the account to which that e-mail was copied). I reject this explanation. E-mails cannot have any geographical limit and Leung’s denial of receipt (and his reasons for denial) demonstrated the extent to which he was prepared to say anything that came into his head at a particular point in time just to achieve his purpose. Eventually Leung did accept that he had received the e-mail but he said that he had not bothered himself with it. He said that he had not done anything to rebut the contents of the e-mail because Dilip was a bad guy, Dilip’s relationship with DRC was not good and Dilip’s finances/accounts were already being vetted/investigated by accountants, and that if he were to say anything wrong in his e-mail, people could seize upon it. I reject this explanation. Whatever misdeeds might have been done by Dilip (and I will deal with this topic, which was a favourite topic of Leung, later in this judgment), they had nothing to do with why Leung could not have clarified or rebutted this e-mail (which, according to him, was all incorrect). 80.I should mention here that Leung’s allegation that Dilip had been guilty of some sort of financial misconduct within DRC was a constant theme in Leung’s evidence. What happened was apparently that Dilip was suspected or accused of claiming to have incurred a lot of expenses for DRC without the requisite supporting documentation and as a result, an accounting firm was engaged to vet Dilip’s finances. From time to time when Leung was forced into a difficult position under cross‑examination, he would put the blame on Dilip as if it provided the magic cure to all the problems in his evidence. For example when he was confronted with the e-mail from Lee to him dated 22 December 2005 (referred to above) his first reaction was to say that the e-mail was given to Lee by Dilip, as if the mention of the name of “Dilip” would undermine the credibility or veracity of the e-mail. However, as it turned out, he in fact had no dispute as to the authenticity of the e-mail. The e-mail was an e-mail by Lee to Leung and there are no signs of it having been copied to Dilip. His reference to Dilip in the context of this e‑mail was nothing but a red herring and a desperate attempt to say anything to divert my attention and to filibuster. There are other examples of “blame it on Dilip” which I shall deal with below. 81.Another e-mail on this topic of construction system is an e-mail dated 22 October 2005 sent by Lee to Leung. In this e-mail Lee asked Leung about the status of Leung’s discussion with a European firm about prefabricated matter. This e-mail showed that as far as Lee is concerned, Leung was responsible for speaking to contractors about construction systems. This is in favour of Lee’s evidence as to Leung’s role in the entire Project, and against Leung’s evidence. Leung was asked in cross-examination about the reference to the “European firm” in this e-mail (which, according to Lee, was the Swiss firm that Leung had been telling him). Leung accepted that the European firm was a Swiss firm but, after a long and rambling answer, denied that the Swiss firm was approached for the purpose of the Project. He said that the Swiss firm was approached for the purpose of a future project. I have no hesitation in rejecting this. Leung give me the unmistakeable impression that he was “improvising” and liberally making things up when he gave his long rambling answer. Further, there is no reason why Lee should raise the issue of some Swiss system relating to a future project with Leung. There is no evidence that Lee and Leung were in any other project at that time. In fact, on Leung’s evidence, his discussion of this “future project” was with Au, not with Lee. 82.Then there is an email dated 29 October 2005 from Lee to Dilip, asking for information about the prefab system. This was copied to Leung as well. This is again consistent with Lee’s case as to Leung’s role in the Project and inconsistent with Leung’s evidence. At one point in time Leung even tried to suggest (almost as a knee jerk reaction) that he had not seen it and he asked (rhetorically, in the witness box) where his name was on the e-mail. His name, of course, was on the list of recipients. He then had to admit that he had received it. 83.Leung had not responded to any of the above e-mails. He had certainly not made any reference to any oral requests or demands having been made to Lee for the provision of track record or financial proof. Leung said in cross-examination that Lee had promised to give these to him in June, July, August and October. Had that been true, one would have expected Leung to raise it amidst the above flurry of e-mails. The short point would have been “You have not yet given me what you had promised me; you are in breach of contract yourself! Why are you now chasing me for all sorts of irrelevant matters?” There never was any satisfactory explanation from Leung as to the absence of any response by him. 84.For the avoidance of doubt, I find that Leung has not requested or demanded (whether orally or in writing) Lee to provide the financial proof or track record to Leung. Lee has not been in breach of the Agreement. I also accept Lee’s evidence that he had already lined up one Mr So Yu Pui to provide the contractor’s licence and the requisite track record and financial proof, that he had informed Leung that the contractor’s licence was ready in July and August, and that the reason why he had not paid So Yu Pui for the track record (or produced them) was because he did not want to pay out (and had not paid out) the money to So Yu Pui when Leung had not informed him as to when the NHA application would be finalized. Quite apart from my general view on the relative credibility of Lee and Leung, I find it inherently unlikely that Lee would have continued to press (via e-mails that I have referred to above) Leung/Dilip about the NHA application and the construction system (way up to the period after 25 November 2005) if Lee was not himself ready to perform his part of the deal by providing the requisite track record and financial proof. 85.Further, I do not regard it as necessary, in the overall scheme of things, for Lee to call So Yu Pui as a witness and in any event I accept his explanation for not calling him, namely that So had refused to be a witness. There were some suggestions that So was in Dubai and so not amenable to a subpoena. Even if he was (at the time of trial) in Hong Kong, his involvement was peripheral in my view and I would not attach any significance to (or draw any adverse inference from) the fact that Lee had not compelled So Yu Pui to testify. 86.One further point to bear in mind in assessing the credibility of Leung’s claim is that Or & Partners’ letter before action dated 18 December 2006 came literally out of the blue. On Leung’s case, 25 November 2005 (the deadline for submission of application to NHA) was a “point of no return”. Had he really made requests or demands to Lee and had Lee really been in breach of contract which caused huge losses to Leung as he now claims, one would have expected Leung to take swift steps to enforce his rights under the Agreement against Lee after the “point of no return”. Yet he waited for one year before instructing his lawyer to write to Lee. The lateness with which Leung raised his complaints is a factor which cast doubt on the seriousness of Leung’s claim and the credibility of any suggested “demand”. 87.I have not lost sight of the fact that shortly before this letter, Leung attended the Thai authorities to be interviewed (see above). I am inclined to think (and, insofar as it is necessary, I so find) that the sending of the letter before action was prompted by the prospect of proceedings against Leung in Thailand, rather than any genuinely held belief that Lee had been in breach. MISCELLANEOUS POINTS ON CREDIBILITY 88.There are numerous aspects of vacillation, evasiveness and filibustering on the part of Leung that had severely dented his credibility. It will unduly lengthen this judgment if I had to go through them one by one. However, there are two such matters which I would specifically mention because they had taken up some time during the trial. 89.In the course of his evidence, Leung produced photocopies of two documents which purported to be documents of transfer signed by Leung which transferred 1,000 shares in DRC to him and 1,000 shares to his wife (they were marked exhibit “P1”). The documents were bilingual (in Thai and English) and dated 12 July 2005. They contained a witnessing clause but were not signed by any witness. The place of signing (typed on the document) was an address in Thailand. They bore the purported signatures of Leung, his wife and Lee. The purpose of producing these documents is to show that Lee in fact signed away 2,000 of his shares in DRC and to rebut Lee’s suggestion (in Lee’s witness statement) that it was only at a later stage (after he had commenced prosecution in Thailand) that Lee learned that his shareholding in DRC had been purportedly reduced from 8,000 shares to 6,000 shares. 90.The dispute is, technically, not directly relevant to the issues raised in the pleadings because there is no plea about this and also because this is not a claim by Lee that his shareholding in DRC had been reduced or transferred away without his consent. However, Leung had chosen to deal with it (to the extent of questioning P1 at trial) and his evidence deserves some comment. 91.Lee denied having signed P1. In Counsel’s cross‑examination of Leung, one question was prefaced by a suggestion that Lee could prove that he was not in Thailand on the day in question. Lee in fact had not produced any “proof” that he was not in Thailand that day, but this question prompted Leung to immediately say that although the document P1 stated that the documents stated that they were signed in Thailand, in fact they were signed by both him and Lee in Hong Kong. As to why the place of signing was stated to be in Thailand, he blamed it on the secretary of the Thai lawyer who prepared the document. 92.The documents were bilingual. Each line of English text would have the equivalent Thai text appearing immediately above (or below it). Leung explained that when signed in Hong Kong, the Thai words were not there. Only the English words were. Then after signing, they were taken back to Thailand by him to be translated into Thai. 93.Then when it was pointed out to him that his hotel bills actually showed that he was staying in a hotel in Thailand on 12 July 2005, he sought to explain that by saying that he was in Hong Kong in the morning and returned to Thailand in the afternoon/evening. 94.Later, when pressed, he changed his case and said that the date of signing might not have been 12 July 2005 but he was unable to explain when the documents were signed. As to why the documents were dated 12 July 2005, again he blamed it on the secretary. 95.He said he was unable to produce the original because the original was filed in Thailand. 96.I have no hesitation whatsoever in rejecting Leung’s evidence about the signing of exhibit P1 :
97.For the avoidance of doubt, even without this saga, there were already too many unsatisfactory features in Leung’s evidence to justify my taking a dim view as to his credibility and making the findings of primary fact in this judgment. His unimpressive and shifty attitude during the saga of “P1” has simply served to reinforce the unfavourable view I had taken of his credibility. 98.There is another point on Leung’s credibility. A favourite topic of Leung was the concept of “rights and obligations” (權債發生) which, according to him, was a well established concept in accounting circles and that one could easily verify that by asking the largest accounting firms. He repeated this many, many times in his evidence and submissions. He wrote it out in exhibit P2 for my reference. His argument is that Lee had, in a sense, been guilty of using corporate property of DRC without properly accounting for US$100,000. According to Leung, Lee was in fact obliged to commit US$500,000 to DRC but he only paid US$400,000; he remained “committed” to pay the remaining US$100,000 but instead of paying out the US$100,000 in hard cash to DRC, Lee had to use US$100,000 to lease an overseas contractor’s licence (together with its “track record”) so that DRC could submit these materials to NHA. By not procuring a “leased licence”, Lee had failed to explain or account for how he had used the said US$100,000. 99.In my judgment, this case has absolutely nothing to do with “accounting principles” and Leung’s attitude is again, regrettably, one of “throwing his weight about” in the hope that the Court would be intimidated by his apparent confidence in putting the point forward. The point about the US$100,000 is simply this : as a matter of construction of the Agreement, Lee was to inject funds in the amount of US$400,000. However, his investment was to be taken as also including the fee that he had to pay to “hire” the overseas contractor’s licence (capped at US$100,000) and the cost of such hiring of his licence would be counted as part of his investment and returned to him at the end of the day. There is no question of Lee having “used” (or “taken”) US$100,000 from any one for his own use. 100.Again for the avoidance of doubt, even without the unsatisfactory features of his evidence on this issue, I would have made the findings of fact against him in this judgment, but Leung’s disingenuous performance over this issue simply served to reinforce the adverse view I had formed about his credibility. WHAT IF THERE HAD BEEN DEMAND? 101.If (contrary to my firm finding above), Leung had indeed made demands on Lee (as Leung has alleged) and Lee had failed to provide the materials, then I think Lee would have been in breach. Lee argued that it was not necessary for Leung to have the track record and the financial proof in order for him to be able to fill in the application form to the NHA. I am not sure if that is correct. If one were to look at the NHA application form, it called for the inclusion of experience of construction projects of the company or its parent company in case of a joint venture. In any event the wording of the Agreement was that the provision of the track record and financial proof was for the purpose of being submitted to the NHA and so it would be difficult to say that those were not necessary. That, however, does not mean that the lack of an application by DRC to NHA was caused by the absence of such financial proof and track record. Quite apart from my finding earlier that Leung had never demanded Lee to provide the track record and financial, as will be seen later it is also my finding that Leung had never intended to make any application to NHA in the first place, and so there can be no causal link whatsoever between (i) the absence of track record/financial proof and (ii) the absence of any application to the NHA. 102.If Lee had been in breach (which, on my primary finding above, he had not) and if Leung had not been fraudulent, then it is my view that the breach would have been sufficiently serious to justify termination. The point of requiring track record and financial proof is to enable an application to be made. I do not accept Lee’s argument, made in paragraph 36 of his closing submissions, that any breach was only a breach of warranty. PROOF OF LOSS AND DAMAGE 103.In case this case goes further, I should state my views as to the quantum of Leung’s claim as to damages. 104.I have no hesitation in rejecting Leung’s claim as to the quantum of damages. He had completely failed to explain the nature of the items of the various items which he claimed by way of damages in paragraph 4 of the Statement of Claim. 105.It would appear that Leung’s claim is not pleaded on the basis of a claim for profits that he had expected to make out of the Project. Rather, it appeared to be a claim for wasted expenses caused by Lee’s default. But if that is the basis of his claim, then there are a series of difficulties that he had not been able to overcome. 106.In his witness statement at paragraph 12, he adopted exhibit LPSR-3 as the details of his loss and damage. But LPSR-3 is simply Or & Partner’s letter before action. There is a table in that letter setting out alleged details of his loss in general terms, which were reproduced in paragraph 4 of his Statement of Claim. But as I said they were in very general terms. For example there is an item “overhead costs of DRC Real Estate Development Co. Ltd for the period from October 2005 to December 2006 (15 months x @ 1,000,000 Baht)”, the total of which amounted to 15,000,000 Baht. However, there was no attempt to provide me with any narrative evidence as to what those overhead costs consisted of. There was no primary documentary evidence to show any payments and receipts. The figure of 1,000,000 Thai Baht per month appeared to be a round figure but it is not clear how this round figure was “rounded up”. In oral evidence, Leung also appeared to withdraw an item for accommodation (1,700,000 Thai Baht) and an item for allowance (3,300,000 Thai Baht) even though it is not clear whether he was serious about it. The pleading has not been amended to remove these two items. All in all, the oral and documentary evidence in relation to quantum is in a highly unsatisfactory and deficient state. 107.Leung put in a good deal of what appeared to be audited financial statements of DRC. There was also a document called “Annual Statement from March 2005 to April 2008”. However, this document is not self explanatory. Apart from two figures of 5,830,000 Thai Baht and 8,959,305.89 Thai Baht, I am unable to match its contents with the pleaded quantum in the Statement of Claim. A claim for damages is not proved by simply including some kind of audited financial statement without any assistance or narrative explanation as to what each item related to and why it was legally a claimable amount. There is no necessary correlation between (i) the fact that an item has been “audited” and (ii) whether it can be the basis of a claim in law. For example an item might have been purchased but it might not have been wasted as a result of breach. When asked why, after 25 November 2005, Leung continued to keep DRC in existence (to the extent of continuing to incur expenses and rental) notwithstanding that 25 November 2005 was the point of no return as far as the NHA application was concerned, Leung answered that (among other things) DRC had contracts with other people. No details or particulars of such other contracts had been provided. But if DRC indeed had contracts with others, then the expenses of DRC might not necessarily be incurred solely in relation to the Project and those expenses might not necessarily have been wasted because of Lee’s (assumed) breach. There was no satisfactory explanation by Leung in this regard. 108.On the other hand, if DRC had no contracts with others and if there were no longer any reason for DRC’s continued existence after 25 November 2005, then any “expenses” after 25 November 2005 lack rational justification and cannot be claimed. 109.By way of another example as to the unsatisfactory and potentially inflationary (or even fictitious) nature of Leung’s damages claim, there was an item called “Living allowances for Roger, Diana and Wilson for the period from October 2005 to December 2006” at 220,000 Thai Baht per month. This was the item which Leung had said, during his oral evidence, that he was withdrawing but which it was not clear whether he did intend so. Diana is Leung’s wife and Wilson his son. There was no explanation as to how such “living expenses” (if indeed they were incurred) could have anything to do with the Agreement. There is no concrete evidence as to the sort of things done by these two persons in relation to the business of DRC, let alone work that has become wasted as a result of Lee’s (assumed) breach. Further, they were bare assertions by him, unsupported by any primary materials such as invoices, receipts, etc. 110.The list of unsatisfactory features can continue. The particulars cry out for explanation but no proper explanation existed. 111.I reject Leung’s claim for damages even if (contrary to my finding above) Lee was in breach. FRAUD 112.I now turn to the allegation of fraud against Leung. 113.The significance of the plea of fraud (if proved) is this. If (as I have held) Lee had not been in breach, then Leung would have no claim against Lee and Lee would have a counterclaim for fraud against Leung. 114.Even if (contrary to my ruling above) Lee had been in breach, then prima facie Leung would have been entitled to terminate the Agreement on the basis of Lee’s breach. But Or & Partner’s letter terminating the Agreement was only sent on 18 December 2006. If anything had taken place prior to 18 December 2006 which had the effect of terminating the Agreement on the ground of fraud, then there would be no Agreement in existence on 18 December 2006 on which Or & Partners’ letter could “bite” (and on which Leung could mount a claim for breach). If fact if the Agreement had indeed been induced by fraud, it may even be argued that Lee could terminate it even after Or & Partners’s letter. 115.Lee pleaded fraud in his Counterclaim and that he was entitled to rescind the Agreement. He has not pleaded how he had rescinded the Agreement. But nor had Further and Better Particulars been asked for. It is therefore open to Lee to rely on any items of the pleaded facts. 116.At paragraph 6 of the re-amended Defence and Counterclaim, Lee pleaded that he reported the incident to the Thai police on 6 April 2006. Leung was plainly aware of Lee’s complaint to the Police, because (as I have said above) he attended the Thai authorities on 30 November 2006 to be interviewed. In my judgment Lee’s act of complaining about Leung’s alleged fraud to the Thai authorities is an act capable of constituting termination of the Agreement on the ground of fraud and it had been communicated to Leung. Therefore if there was indeed fraud, the Agreement had already been terminated on the ground of fraud before Or & Partner’s letter dated 18 December 2006. 117.The question, then, is whether Lee’s complaints of fraud can be established. 118.Lee’s case of fraud is that Leung never had any intention to procure DRC to apply to NHA for approval regarding the Project. In support, he relied on a number of matters :
119.If a person induces another to enter into a contract with him when he had no intention to fulfil the contract, then this could amount to fraud because at the time of contracting he must be taken to have represented an existing intention to perform the contract. Technically there is a difference between alleging (i) a breach of contract and (ii) a fraudulent representation made before the contract is made. A breach of contract by itself does not amount to fraud. A person could well have intended to perform the contract at the time of contracting (and hence not fraudulent) and only decide to breach it afterwards. To amount to fraud, the victim has to prove that the alleged fraudster, at the time when he induced the victim to enter into the contract, did not intend to perform the contract at all. 120.Since one is unlikely to get a direct confession from the alleged fraudster, very often one has to rely on drawing inferences as to the alleged fraudster’s state of mind from surrounding circumstances. The fact that he eventually did not perform the contract could be evidence (viewed with the totality of all the evidence) that he had not intended to perform the contract even at the time of contracting. Other factors would include (and this is not intended to be exhaustive or dogmatic – it is just a matter of common sense) whether there is any evidence that the alleged fraudster had done anything towards trying to fulfil the contract at all and whether right at the outset he had already behaved in a way suggesting that he never wanted to perform the contract. 121.I start by examining what steps, if any Leung had taken to progress the Project. As a matter of common sense, if one had an intention to perform one’s part of a contract, one would have expected to see some conduct or act by that person in performance, or at least in preparing for the performance, some obligations thereunder. In this case, however, there is no evidence whatsoever that Leung had done anything to prepare for the performance of the Agreement, let alone actually performing it. 122.DRC was incorporated in June 2005. However, the registered capital was only 10,000,000 Thai Baht whereas the Agreement contemplated that the amount of registered capital should be 120,000,000 Thai Baht. The registered capital of DRC was therefore not in conformity with the requirements of the Agreement. 123.Leung’s explanation was that after DRC had made some profits, some profits would be taken out and capitalized to top up the registered capital to 120,000,000 Thai Baht. I reject this explanation. There was nothing in the Agreement which provided that the registered capital could be increased in “stages” in this manner. And Leung’s explanation did not deal with the scenario when DRC did not make any profits. The contractual requirement was for the incorporation of a company with registered capital of Thai Baht 120,000,000, not a company with registered capital of Thai Baht 10,000,000 to be increased later on condition that it was profitable. 124.Leung alleged that Lee knew that DRC only had a registered capital of 10,000,000 Thai Baht, because Lee had signed a document in Thailand in May 2005 (in his presence and also in the presence of a Thai lawyer) which stated what the amount of registered capital was. I have already referred to this evidence at an earlier part of this judgment and to Leung’s attempt to mislead me by saying that the Thai requirement is the same as the requirement in Hong Kong namely that all shareholders had to sign a document stating the registered capital. There is no such requirement in Hong Kong. Further, Leung was unable to produce such a document allegedly signed by Lee. When asked about why he could not produce that document, Leung said that he could not go back to Thailand because there was an arrest warrant against him. But even assuming that he had some reason for not wanting to go back to Thailand (I am not saying that his reason is a good one – it may even be said that the arrest warrant was self-induced due to his earlier failure to appear before the Thai authorities), there is no reason why his relatives or associates or lawyers cannot go to Thailand to obtain the document for him and send or fax or scan it over to Hong Kong. 125.Therefore I reject the suggestion that Lee knew that DRC only had a registered capital of 10,000,000 Thai Baht as opposed to 120,000,000 Thai Baht. 126.Next, it is common ground that Leung had not procured DRC to make any application to NHA. I have already found that Leung was taking the lead in this Project. I have also found that he has not made any demand or request for Lee to provide the track record or financial proof to him. He has not produced any evidence that he has taken any other steps to prepare any application. For example there is no evidence that he has in fact taken steps to approach building system contractors with a view to obtaining building technology to fulfil NHA’s requirements. He said that without the track record and financial proof, he could not put in a valid application to the NHA. Even assuming that to be so, as a matter of common sense there is no reason why he cannot start doing other preparatory work while waiting for Lee to give him the awaited materials. For Leung to take a complete “hands-off” approach and in effect say “well, it is your business; if you do not let me have the materials then I will sit by, do nothing and let you sink” is absurd. It will be remembered that I have already found that his role in the Project was not one who was only passively making available the “shell” of DRC. He was the leader of the Project. He was, in effect, reminded by Lee about the imminent deadline by Lee’s e-mail dated 17 November 2005 (referring to the two October 2005 announcements by the NHA) and yet he did nothing. 127.Further, he was completely unable to explain how the US$400,000 received from Lee had been utilized for the purpose of the Project. 128.There had been some disputes as to the nature of the money paid by Lee to Leung/DRC. Leung insisted on calling the money “start up fees” instead of “investment” and Lee said that the money was in the form of an investment by him. In clause 11 of the Agreement there was a reference to certain pre-operation costs having already been incurred. I have earlier decided that the money was in the nature of an investment and Lee was an investor (with Leung taking the lead in the Project). But irrespective of whether one calls the payment “start up fees” or “investment”, and irrespective of whether the funds were to be used to reimburse earlier costs or for the purpose of funding future activities of DRC, one would expect the usage of monies to be properly documented, recorded and explicable if the business was honest and above board. However, there is not an iota of credible evidence on these matters. 129.At one time Leung said that of the money he had received from Lee, he had given them all to DRC. He then said that he had given the money to Dilip. Neither of these (i.e. whether he gave it to Dilip or DRC) is properly supported by the documentary evidence at all. 130.In his evidence, Leung had referred to page 3 of his Opening submissions where he had asserted that pre-operating expenses incurred by Dilip amounted to 8,959,305 Thai Baht (said to have been “checked by auditor firm”) and travelling/accommodation./entertainment expenses amounted to Thai Baht 5,830,000. I have also crossed checked the figure with a “Report on fact findings in respect of the account statements submitted by Mr Dilip Valiramani for the period from March 2005 to October 2005” (this is the report by the accounting firm which was retained to look into Dilip’s finances which I mentioned above). The report at most showed that of an amount of Thai Baht 8,959,305.89 allegedly spent or incurred by Dilip as “pre-operating expenses”, part of it (totalling Thai Baht 3,495,567.25) were not supported by documents and another part (Thai Baht 1,189,138.64) was supported by documents not in DRC’s name. The report does not deal with the alleged amount of Thai Baht 5,830,000 for travelling/accommodation/entertainment. And even taking the report at face value, it still does not answer the question of how Leung had used the money given to him by Lee (e.g. whether he had given the money to Dilip in purported reimbursement of funds which Dilip had allegedly incurred, or given to DRC for expenses that had been incurred or to be incurred). For this, one has to turn to Leung’s own evidence. 131.A series of questions were posed in cross‑examination concerning how he treated the funds paid by Lee into his personal account in Citibank. Within the account, there was a Thai Baht account and a USD account. Three sums totalling US$200,000 had been paid by Lee into his USD account over the course of 16 May, 24 May and 10 June 2005. The documents showed that they had been withdrawn (in cash) or transferred on numerous occasions. 132.He tried to explain his handling of the funds by saying that he had withdrawn the funds in cash on several occasions and handed them over to Dilip. He said Dilip had already “stolen money” from DRC and hence he did not pay all the money to Dilip in one go. 133.But later he said that in fact he only found out Dilip’s misdeeds in September 2005 (in fact according to the covering letter for the report on Dilip’s expenses referred to above, the report was not commissioned until November 2005), which means that any payment to Dilip “bit by bit” before September was not because of his discovery of Dilip’s misdeeds. 134.He then explained that he did not pay all the money to Dilip in one go because he was a cautious person and did not want to give them to Dilip all at the same time. When he was challenged as to which items in his bank statement showed the payments to Dilip, he first gave an evasive answer (or non-answer) to the effect that he had “no regrets” and that he had paid to Dilip bit by bit. Then when he was forced to look at his own bank statement, he pointed to some cash withdrawals from his Citibank Thai Baht account and said that those cash withdrawals were taken and then given to Dilip. But when it was pointed out to him that the money was actually paid by Lee into his USD account but the withdrawals he pointed to were from the Thai Baht account, he said that somehow Citibank had a practice of automatically converting his USD into Thai baht and transferring them to the Thai Baht account. But a perusal of the statements for the USD account did not show any such “automatic conversion” of USD into Thai Baht. 135.Even if one were to assume that a Thai Baht deposit of Thai Baht 398,700 on 24 May 2005 was the result of two withdrawals totalling USD40,000 from his USD account on 24 May 2005, there were a series of cash withdrawals from the Thai Baht account thereafter (some of them, on their face, having been withdrawn in Hong Kong such as Festival Walk and Tat Chee Avenue) but there is no documentary evidence as to where they had gone to. Nor is there any documentary evidence as to where the other parts of the USD paid by Lee had gone to. 136.Standing back from all these matters of detail, the short point is that on the issue of the destiny of the money paid by Lee, all one had was Leung’s own say-so that the funds had been given to Dilip. I find it incredible that large amounts of cash had been so given to Dilip in this piecemeal manner. No receipts or any other form of documentation had been provided to show that Dilip had received the money. If, as Leung said, he gave the money to Dilip bit by bit because he was a cautious man, it is inconceivable that (i) he would have done it in cash (where there would be no paper-trial or transfer record to prove the payment) or (ii) if paid in cash, he would have failed to ask for a receipt. The whole saga of evidence about what he had done with Lee’s payment is wholly exasperating. I reject Leung’s explanation completely. Whatever might have been the money allegedly spent by Dilip as pre-operating expenses, and whatever wrongdoing Dilip might been guilty of by way of making claims without supporting receipt, I reject Leung’s evidence that he had given any part of Lee’s payments to Dilip. 137.There is likewise no evidence or suggestion that Leung had used or applied the money for the purpose of DRC’s affairs of business. Put shortly, there is an absolute lacuna in the evidence in terms of probative and credible evidence that the funds received from Lee had been applied for the purpose of DRC. 138.I am driven to the conclusion, therefore, that Leung had in fact applied for funds for his own purposes. Given the proximity of time between the time of the Agreement and the withdrawal/transfer of such funds, I am entitled to infer and find, and I do infer and find, that Leung has already had such an intention to apply the funds for his own purpose before entering the Agreement. 139.Lastly there is no evidence that Leung had ever tried to keep Lee informed about the Project, e.g. by way of shareholders and directors’ meetings, or any form of communication. This is hardly consistent with the conduct of an open, honest businessman. 140.On the totality of the above evidence, I find that Lee entered into the Agreement in reliance on Leung’s representation as described in paragraphs 3 and 33 of his witness statement. Implicit in that must be the (false) representation that Leung had a present intention to make an application to NHA for approval and he had a present intention to apply Lee’s funds towards that purpose. 141.I have further come to the conclusion that when Leung entered into the Agreement with Lee, he did not have the intention to make any application for NHA approval or to use any funds received from Lee for the purpose of the Project. In short, the scheme was a scam. 142.I have borne in mind the fact that the burden of proof is on Lee. However, once the plea of fraud has been pleaded and the issue raised, it behoved Leung to make full discovery of all documents relevant to the allegation of fraud and to provide witness testimony to address the issues (especially any unsatisfactory features). I am entitled (and indeed bound) to take into account the numerous gaps and loopholes in Leung’s evidence, both oral and documentary. 143.I appreciate that this is a case involving serious allegations of fraud and thus while the standard of proof remains “on a balance of probabilities”, nonetheless “the more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it” (see per Lord Nicholls in Re H [1996] AC 563 at 586G-H; also see 586C-H generally). On the approach in Re H I am satisfied that fraud has been proved against Leung. AU’S EVIDENCE 144.In support of his case Lee had called Au, the owner of Free Form, to testify. 145.On a very high level of generality, Au’s evidence was to the effect that he was induced into entering into a similar scheme as that which Lee had been induced to join. He was, like Lee, a victim of Leung’s fraud. He produced some documentary evidence in support of his evidence such as the agreement between Leung and Free Form and some correspondence between him and Leung. 146.In effect, Lee relies on Au’s evidence as some form of “similar fact evidence” against Leung. 147.The problem with “similar fact evidence” is that, unless the evidence is clear and indisputable, trial of the issues raised by the “similar fact evidence” could unduly complicate the matter. For example, the thrust of Au’s evidence is that Leung had similarly defrauded him. However, each case is different and the current action is not a claim by Free Form against Leung. There has been no pleading setting out the areas of dispute between Free Form and Leung. On the basis of the evidence before me, I can already see that there are aspects where the areas of dispute between Leung/Au could well be different from the areas of dispute between Leung/Lee. For example there had been more correspondence between Leung and Au about the bank letter (and there are disputes as to whether the requisite bank document was a SWIFT or a bond). There are also some confusing features in Au’s evidence or recollection of events (for example his evidence about the timing of Leung’s request for the bank SWIFT in paragraph 16 of his witness statement, the mistaken statement in paragraph 10 of his witness statement that Arthur Chan was Leung’s solicitor and his assertion that he first met Leung in Thailand in late 2004 which was doubtful because Leung’s passports suggested that Leung was in Hong Kong at that time) which made me hesitant in acting upon his evidence in this action for the purpose of resolving the dispute between Lee and Leung. 148.I have come to the conclusion that I should not and need not adjudicate on the factual dispute between Au and Leung. To do so would be potentially unfair to Au and Leung because the dispute between them has not been properly pleaded. There may or may not be future proceedings between them and I do not wish anything I say here to prejudge any issues in those proceedings. In rejecting Leung’s claim and acceding to Lee’s claim, I have not relied on any findings of fact based on Au’s evidence. I must, however, stress that I am not rejecting Au’s evidence or finding that his evidence is untruthful. It simply is unnecessary and undesirable for me to make findings. 149.In fairness to Leung, I have specifically reflected on whether any part of Au’s evidence has had the contrary effect of weakening Lee’s evidence or strengthening Leung’s evidence so as to cause me to re-think or re-consider my rejection of Leung’s claim and my acceptance of Lee’s claim for fraud. I have decided that it did not. REMEDY AND TRUST 150.The Agreement having been terminated by Lee by his act in reporting the fraud to the Thai authorities, he is entitled to a refund of the US$400,000 that he had paid to Leung with interest at 1% above prime rate, to run from the date of the Counterclaim to the date of judgment and thereafter at judgment rate until payment. 151.On the basis of Lord Browne-Wilkinson’s speech in Westdeutsche Landesbank v Islington LBC [1996] AC 669 at 716C-D, the US$400,000 fraudulently obtained by Leung from Lee is subject to a constructive trust in favour of Lee, and I so declare. 152.For the sake of completeness. I do not find that on the facts of this case there is a Quistclose Trust. The Agreement was induced by fraud and Lee rescinded it. 153.I also order that Lee is at liberty to restore this action (not necessarily before me) for such directions as to tracing and inquiries (and ancillary orders such as disclosure and discovery) with a view to ascertaining the destiny of the US$400,000 or its traceable equivalent and for such further vesting or other orders as the Court hearing the application may see fit to order. It is not clear whether such tracing or inquiry would yield any results and it would be premature for me now to make any concrete order. 154.I make an order nisi that Lee is to have his costs of the action and the Counterclaim. 155.It goes without saying that Leung’s claim against Lee is dismissed.
Mr Stanley C.K. Siu, instructed by Messrs Dominic Y.K. Lai & Co., for the Defendant The Plaintiff appeared in person | |||||||||||||||||||||||||||||
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