Christian Emil Toggenburger and Others v. Luu, Hung Viet Derrick and Others
Read the full judgment text of HCA 815/2009 on BabelCite. This High Court CFI judgment was delivered on 31 July 2012.
1. The plaintiffs commenced this action in March 2009 against 3 defendants. The claim arose out of money paid by the 1 st plaintiff (“ the plaintiff ”) which he says was his contributions to various investment projects promoted by the defendants.
Cites 4 cases
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HCA 815/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 815 OF 2009 ____________
_______________ J U D G M E N T _______________ INTRODUCTION 1.The plaintiffs commenced this action in March 2009 against 3 defendants. The claim arose out of money paid by the 1st plaintiff (“the plaintiff”) which he says was his contributions to various investment projects promoted by the defendants. 2.The total sum he paid over amounted to some HK$111.7 million:
For convenience, these sums will be referred to below as “HK$23 million”, “HK$15.7 million” and “HK$73 million” (as the case may be). 3.Although there are 3 plaintiffs, the 2nd and 3rd plaintiffs are in effect the plaintiff’s corporate vehicles set up for the purpose of investing. Therefore, for ease of inference (unless otherwise expressly stated), the phrase “the plaintiff” below will include a reference also to the other two plaintiffs. 4.The 1st defendant (“Luu”) is and was an entrepreneur and investor. He is an ethnic Vietnamese of Canadian nationality. 5.At least for the purpose of this action, the 3rd defendant (“Tang”), a certified public accountant, was in control of the 2nd defendant (“Zhong Yi”). Similar to the plaintiff, unless otherwise expressly stated, a reference below to “Tang” will include a reference also to Zhong Yi. 6.The investment projects which gave rise to this action took place during the period from about the beginning of 2007 to about mid-2008, a period of 1-1/2 to 2 years. 7.For convenience, those investment projects have been referred to by the parties as:
Apart from the above, the plaintiff also brings a claim based on a settlement agreement allegedly made in June 2008. 8.On the other hand, Luu brings a counterclaim against the plaintiff whereas Zhong Yi brings an indemnity/contribution proceeding against Luu. BACKGROUND 9.Beauforte Investors Corporation Ltd (“Beauforte”) used to be a company listed for trading at the Hong Kong Stock Exchange. The plaintiff was a shareholder having a substantial shareholding, and was one of its directors. 10.In 2006, a dispute developed between the plaintiff and another substantial shareholder of Beauforte. In the course of a legal proceeding involving the two, Tang, an independent non-executive director, provided assistance to the plaintiff. Friendship developed between the plaintiff and Tang from about June 2006 onwards. 11.Luu and the plaintiff became acquainted in about November 2006 through Tang, and investment discussions between them took place thereafter. THE PARTIES’ CASE 12.In relation to the transactions referred to in para 7(a) to (d) above, the plaintiff’s primary case is that he was induced to enter into them (and paid over his money) because of the misrepresentations of Luu and/or Tang (as the case may be). 13.The misrepresentations will be set out in more details below. But according to the plaintiff’s pleading, the plaintiff alleges in gist that Luu and/or Tang (as the case may be) presented the investment prospects to be rosier than they actually were. Claimed returns from the investment projects (by way of interest income, earnings or capital gains (as the case may be)) were a lot higher than they really were. 14.Luu denies the misrepresentation allegations. His case is in essence that both he and the plaintiff were co-investors who unfortunately lost their capital contributions in failed investment projects. Luu also denies the plaintiff was introduced to, or participated in, the Warderly Agreement. 15.Apart from the misrepresentation claims, the plaintiff also alleges that Zhong Yi acted as his adviser and escrow agent, and that Zhong Yi breached its duties in both capacities. 16.Zhong Yi denies the allegations. Its case is in short that Tang was a common friend of the plaintiff and Luu, and he acted in effect as a go-between or coordinator between them in relation to the investment projects for no charge and with no personal gain. Tang also denies the alleged misrepresentation. 17.Luu’s counterclaim against the plaintiff is concerned with expenses which he and the plaintiff agreed to share in relation to the ListCo project, and the repayment of down-payment and loans. 18.The indemnity/contribution claim against Luu is based on Luu’s instructions to Zhong Yi in relation to the transfers of the plaintiff’s funds. (a) The Warderly Agreement 19.The plaintiff’s case is that in March and April 2007 he paid over HK$23 million in total (held at one stage by a solicitor firm, Messrs Stevenson, Wong & Co (“Stevenson, Wong”) as a result of Luu’s misrepresentations. 20.By way of background (for which there is no real dispute), Warderly International Holdings Ltd (“Warderly”) was a Hong Kong publicly listed company. It was in debt and badly need funding. In about late 2006 or early 2007, Luu was in active negotiation with Warderly’s management for that reason. On behalf of a consortium of “white knight”, Luu discussed the provision of a convertible loan in return for a pledge of Warderly’s shares as security. 21.The plaintiff alleges that at meetings between him and Luu held in February and March 2007, Luu misrepresented that:
(“the Warderly Misrep”) 22.On about 6 March 2007, Luu changed his story and told the plaintiff that:
(respectively “the Housely Misrep” and “the New Energy Misrep”) 23.As a result, the plaintiff caused HK$5 million to be transferred to Housely and HK$18 million to New Energy. 24.By about late April or mid-May 2007, the plaintiff knew that his investment in the Warderly Agreement failed (or at least was at great risk) because:
25.Further, in breach of the Warderly Agreement, Luu did not use the said sum as agreed but used it to acquire 50 million Warderly shares for himself instead. Accordingly, there was a total failure of consideration for the said sum. 26.Luu’s case is very different from that set out in para 21 to 25 above. From the beginning, the investment discussion between him and the plaintiff has always been about the Champ Car Racing project, and was never about Warderly. 27.According to Luu, in early 2007, the plaintiff indicated his interest to invest in the Champ Car Racing project. A corporate vehicle (later known as Fortune King Investments Ltd (“Fortune King”)) was set up for such purpose. 28.The plaintiff’s total investment in the Champ Car Racing project was US$4.95 million (equal to about HK$38 million), of which HK$23 million was part payment (see also para 19 above). The HK$5 million was the plaintiff’s repayment of a loan advanced by Luu earlier. The remainder of the HK$38 million (that is, about HK$15 million (HK$38 – 23 million)) was paid by the plaintiff in May 2007 (see para 36 below). 29.Tang also denies the plaintiff’s involvement in the Warderly Agreement. It is common ground this head of claim is not brought against Zhong Yi or Tang. But the plaintiff alleges Tang also took part in misleading him. Tang denies he ever did so. 30.Tang’s version is different from the plaintiff’s and Luu’s. His case is that the plaintiff’s HK$23 million was intended to purchase the Beijing refinery plant as the plaintiff’s personal investment. (b) The Champ Car Racing project 31.The background facts pertaining to this part of the plaintiff’s case can be found in para 108 and 109 below. 32.The plaintiff’s case is that:
Further, because of the events set out in para 34(2) below, HK$23 million he paid earlier for the Warderly Agreement became part of his investment in this project. His total investment was thus HK$38.7 million (HK$23 million and HK$15.7 million). 33.On about 21 May 2007 (slightly over 2 months after the Warderly Misrep and New Energy Misrep and very shortly after the payment of HK$23 million), Luu and Tang told the plaintiff about the Champ Car Racing project. In short, it was a car racing series which would be held in the Mainland, with television broadcast rights. 15% interest in the project was offered to the plaintiff. 34.To lure the plaintiff to join the said project, Luu told him:
(“the Car Racing Misrep”) 35.Tang also represented to the plaintiff that investing in the said project was the only way for him to recover the loss suffered in the failed Warderly Agreement. 36.On 21 May 2007, the plaintiff paid over HK$15.7 million to Zhong Yi. On 31 May 2007, he instructed Zhong Yi to transfer the sum to Luu. 37.None of the Car Racing Misrep was true. Accordingly, this head of the plaintiff’s claim is brought against:
38.Luu’s case is that he never misled the plaintiff. In any event, the plaintiff was capable of conducting, and did conduct, his own due diligence check as regards the Champ Car Racing project. 39.As stated above, Luu claims that the plaintiff’s agreed capital contribution was US$4.95 million (equal to about HK$38 million). There is no dispute the plaintiff has paid it in full: HK$23 million was paid in March and April 2007 (para 19 above) and HK$15.7 million in May 2007 (para 36 above). 40.Further, Luu says he and the plaintiff were co-investors of the Champ Car Racing project. The Champ Car Racing project was the brainchild of Ma, and was operated by Ma as a major shareholder. 41.According to Luu, the plaintiff’s investment was completed when the plaintiff was made a 37.5% shareholder and director of Fortune King, which held interest in the Champ Car Racing project. Through Fortune King, the plaintiff owned 15% of that project. 42.The alleged misrepresentation is also denied by Zhong Yi and Tang. Further, any misrepresentation on Tang’s part cannot be attributed to Zhong Yi because Tang’s representations were not made on Zhong Yi’s behalf. Zhong Yi has never agreed to act, or acted, as the plaintiff’s adviser. 43.In relation to the handling of the fund deposit and transfer, Tang’s case is that he was only helping out the plaintiff and Luu as a common friend. The written escrow agreement dated 31 May 2007 was only a formal document which was not intended to have legal effect. This is supported by the fact that, by then, the plaintiff has already (i) instructed Zhong Yi to transfer HK$15.7 million, and (ii) acquired his shares in Fortune King. (c) The ListCo project 44.It is undisputed the plaintiff has paid over HK$73 million during June and July 2007, and Zhong Yi later transferred the sum to Luu or as Luu directed. 45.The plaintiff’s case is that in late May 2007, Luu and Tang introduced him to yet another investment project. They claimed to him:
(“the ListCo Misrep”). The plaintiff was led by the ListCo Misrep to pay over the said HK$73 million. 46.On 26 July 2007, Tang arranged for the plaintiff to become the sole director and shareholder of a Betterment Enterprises Ltd (“Betterment”). On about 9 August 2007, the plaintiff was introduced to the acquisition target, a publicly listed company called ZZ Node Technologies Holdings Ltd (“ZZ Node”). 47.On 24 October 2007, the plaintiff, through Betterment, entered into a sale and purchase agreement with the majority shareholders of ZZ Node to acquire ZZ Node. 48.Despite the plaintiff’s instruction to do so, Zhong Yi and Tang failed to pay the vendors. Consequently, Betterment was unable to complete the acquisition. Betterment obtained a convertible loan from a Richcom Group Ltd (“Richcom”) but still failed to complete the deal. In February 2008, Richcom exercised its rights under the convertible loan, acquired the shares of Betterment and removed the plaintiff from the board. 49.The plaintiff alleges:
Sub-para (a) and (c) above are said to ground the following causes of action against Luu and/or Tang: misrepresentation (Luu/Tang), breach of contract (Luu) and conversion (Luu); sub-para (a) and (b) above are said to ground a cause of action against Luu and Zhong Yi in money and received; sub-para (b) above is said to ground a cause of action against Zhong Yi in breach of duty to account. 50.Luu’s case is as follows. The sum HK$73 million was for the purchase shares in China Oil and Methanol Group, Inc (“China Oil shares”). In around August 2007, he and the plaintiff agreed to the ListCo project. Luu was responsible for arranging its funding whereas the plaintiff was only to act as the front liaison person (no monetary contribution was made by the plaintiff). The costs and expenses were to be shared equally by them. Should the deal succeed, the plaintiff would be paid HK$17 million and some shares of ZZ Node. Luu never misled the plaintiff. 51.It was purely on the above basis the plaintiff proceeded to negotiate with the major shareholders of ZZ Node. Luu has discharged his contractual obligations by procuring the provision of necessary funding by various financiers. The acquisition of ZZ Node depended on (among other things) funds to be provided by financiers (arranged by Luu). It was not completed due to unforeseen difficulties caused by the internal financial restrictions of one of the financiers (who was responsible for a HK$120 million loan). 52.As regards the sum of HK$73 million, as stated above, it was transferred to Zhong Yi by the plaintiff for the acquisition of China Oil shares from Richtex Investment Ltd (“Richtex”) (see the sub-heading “China Oil Shares” below for details). 53.While admitting that he received and used the said HK$73 million, Luu claims that the same was a loan from his uncle, the de facto owner of Richtex (the owner of the China Oil shares). 54.Luu also brings a counterclaim in relation to this deal (see the sub-heading “Luu’s Counterclaim” below for details). 55.Tang’s pleaded case is similar to Luu’s. But Tang says most of HK$26 million (part of HK$73 million) was the plaintiff’s investment in the Champ Car Racing project while the other HK$47 million was for the purchase of China Oil shares. (d) The China Oil shares 56.The plaintiff brings this as an alternative case for his claim regarding the HK$73 million. 57.As stated above, the said sum was transferred from June to July 2007. On about 30 June 2007, the plaintiff told Luu and Tang he would require security or collateral for the sum transferred (and those to be transferred). 58.China Oil was publicly listed in the US. At a meeting held in July 2007, Luu and Tang offered 1 million shares in China Oil as such security or collateral. Luu claimed that the China Oil shares were owned by his uncle (through a corporate vehicle, Richtex). A strategic business plan dated March 2007 was also shown. Various misrepresentations were made in the said document:
(“the China Oil Misrep”) 59.Earlier, Luu also took the plaintiff for a day visit to 3 Mainland refineries in June 2007 and claimed they were the assets of China Oil’s subsidiaries. 60.The corporate vehicle used by the plaintiff to acquire the China Oil shares was the 3rd plaintiff. The 3rd plaintiff entered into an agreement with Richtex to do so. 61.The China Oil Misrep was false: there was no subsidiary, no industrial complex has been acquired and no revenue has been earned. 62.Luu’s case is that the China Oil shares were agreed by the plaintiff to be worth about US$10 million in July 2007, the HK$73 million being part-payment. Luu denies having made any representation in relation to this deal. He only showed the plaintiff a strategic business plan dated June 2006. 63.Tang denies the claim and asserts he was only handling the fund for the plaintiff and Luu essentially as their common friend. The China Oil Misrep allegation against Tang was later abandoned (para 62, plaintiff’s reply submissions). (e) The Settlement Agreement 64.The plaintiff’s case is that a written settlement agreement was reached between him and Luu on 24 June 2008:
65.Despite the agreement, only HK$2.15 million has been repaid in August and September 2008. 66.Luu claims, on the other hand, that no settlement agreement has been made. 67.According to Luu, in mid-2008, the plaintiff told Luu his finance was in difficulties because of margin calls on his considerable share speculation. He asked Luu to help him by buying some of his investments in the Champ Car Racing project and some of the China Oil shares. 68.For this reason, Luu signed 2 letters of understanding respectively dated 10 July and 4 August 2008. Those documents only show Luu’s preparedness to help and they contained terms contingent upon matters which later did not materialize. They created no contractual obligation and lapsed subsequently. 69.Luu has advanced to the plaintiff HK$3 million as down payment and he now counterclaims for its return. 70.Tang, against whom no claim has been made for this deal, essentially agrees with the plaintiff about this deal. LUU’S COUNTERCLAIM 71.This can be summarized as follows. 72.The plaintiff has wrongfully failed to pay 50% of the costs and expenses for the acquisition of ZZ Node. The half share amounts to HK$17.475 million and RMB250,000. 73.The plaintiff has failed to repay HK$3 million down-payment which Luu advanced to him pursuant to the now lapsed letters of understanding. 74.The plaintiff has failed to repay loans which Luu advanced to him in about February and August 2008. These total HK$3.95 million. INDEMNITY/CONTRIBUTION PROCEEDING 75.Zhong Yi seeks indemnity from Luu if it should be held liable for the plaintiff’s following claims. 76.In relation to the claim for HK$15.7 million and HK$73 million, Zhong Yi says it did so in accordance with Luu’s express instructions. Those instructions are also said to amount to Luu’s warranty of authority to receive such sums. Zhong Yi also grounds the claim on payment by mistake. 77.Luu denies the claim and alleges that the payments were made by Zhong Yi as the plaintiff’s agent. Luu denies having given any warranty of authority. In any event, the HK$15.7 million has in fact been invested into the Champ Car Racing project and hence no liability to repay should arise. WITNESSES’ CREDIBILITY 78.Because credibility (and reliability) of the witnesses is important to the determination of this action, I should repeat the approach I adopted in earlier decisions when deciding this aspect:
(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12). 79.The following witnesses testified during trial:
80.Witnesses’ credibility will be discussed first from a global perspective, then in relation to each of the transactions (under the heading “Findings of Fact”). (a) The plaintiff 81.It is undisputed the plaintiff is a Swiss national. According to his witness statement (May 2010), he was:
He also narrates that he:
It is also undisputed the plaintiff fell out with the management of Beauforte and he commenced litigation in Hong Kong as a result. This is more consistent with an intrepid (rather than timid) character. 82.Luu also describes the plaintiff as a substantial shareholder of other second- and third-line listed companies in Hong Kong. In cross-examination, the plaintiff agreed he had investments in the Asian region (since about the mid-or late-1990’s) such as steel companies in India and Taiwan, a small casino in Thailand, some small investment in the Philippines and some Russian shares. He was successful in private option arbitrage deals in the 1990’s. He also has a portfolio of properties in Switzerland. 83.Apart from being a substantial shareholder, the plaintiff took an active role in the management of Beauforte, one of the second- or third-line list companies: he served as an executive director, and chairman of its special assets committee. 84.With the above in mind, I agree with the defence the plaintiff’s claim that he was in effect credulous and gullible is unbelievable. For the same reason, I do not believe his claim that his successful investment history in the past was only because he used to be assisted by outstanding advisers, such as Kressig (in Switzerland and elsewhere), Littmann (worldwide, including Hong Kong), an experienced solicitor and a corporate restructuring specialist in Hong Kong. 85.I also do not accept the plaintiff’s claim that he was unfamiliar with businesses, and/or the business environment, in China as a reason for his supposed naivety. He has not explained what the real difference between these and businesses elsewhere in the world is (if any). It is common knowledge that the legal, regulatory and other business-related regimes in so-called “emerging” economies (China being one of them) are less developed and thus would give rise to a higher financial risk for investors. But a savvy investor such as the plaintiff should long have possessed knowledge of this. 86.The individual dealings will be further discussed below. But overall, I find the plaintiff’s testimony to be inherently implausible and therefore reject it as unbelievable. 87.It was also suggested that the plaintiff has exaggerated his credentials in publicly listed company’s documents. Not much weight has been placed on this suggestion when assessing the plaintiff’s credibility and reliability. (b) Kressig 88.Kressig states he has been the plaintiff’s assistant since 2001 assisting with asset management and the plaintiff’s dealings with the banking and governmental institutions (in Switzerland (perhaps also in Europe)). His duties included taking care of the plaintiff’s real property portfolio in Switzerland. 89.Kressig is portrayed as:
in the plaintiff’s closing submissions: para 21 thereof. 90.By and large, Kressig gives the impression that he was experienced in business dealings and was cautious and risk-adverse in his business/investment approach. In his view,
91.As will be dealt with in more detail under the sub-heading “(4) The China Oil shares” below, Kressig was also involved in that deal. 92.In his witness statement, Kressig describes that:
Kressig also thought that:
93.The plaintiff’s allegations that he was misled by the misrepresentations of Luu and/or Tang (as the case may be) have to be assessed also in the light of Kressig’s above statements; namely:
94.In so concluding, the apparently close relationship between the plaintiff and Luu from about late 2006 to 2008 has been taken into account (examples of this were the sharing of office premises and the Luu’s introduction of the plaintiff as his co-investor at the office opening party in June 2007, and frequent informal meetings). To some extent, this might have accounted for the lack of full documentation for the transactions. (c) Littmann 95.Littmann describes himself as a German diploma lawyer. His capacity and role in relation to the plaintiff and the investment projects in issue herein is not entirely clear. 96.His witness statement gives an impression that he was employed elsewhere and worked on freelance assignments for the plaintiff. His duties included looking after some of the plaintiff’s:
97.Apparently the relationship between the plaintiff and Littmann was not only professional, but also one of close friendship. Littmann also discloses in his witness statement he and the plaintiff went on several sightseeing trips in 2007 and 2008: para 5 thereof. Littmann recalls that the plaintiff used to tell him about the plaintiff’s business/investment projects in Hong Kong at great length: para 5 thereof. 98.One important aspect of Littmann’s testimony concerns a series of meetings in May and June 2008 between him and Luu, Tang and/or Ma. According to the plaintiff’s witness statement, in April 2008 the plaintiff became concerned with the said dealings and he instructed Littmann to gather documents and talk to Luu and Tang (he describes Littmann as his “assistant” (para 39 thereof)). 99.These meetings were in effect part of Littmann’s investigation into the plaintiff’s investment dealings with Luu and Tang. It can be inferred from Littmann’s description of the meetings in his witness statement that the atmosphere could not be too amicable (if not actually confrontational and hostile). In any event, Littmann narrates that a lot of the information sought has not been provided (or satisfactorily provided). 100.Littmann claims that he has prepared contemporaneous records of the meetings which were kept in his laptop computer. The authenticity and accuracy of the records is disputed by the defence. 101.There are three types of records: the meeting agendas, the marked-up meeting agendas and the notes of meeting. The notes of meeting were produced by way of attachments to Littmann’s witness statement dated 12 May 2010. However, the other two types of records were only produced by way of attachments to Littmann’s 2nd supplemental witness statement dated 26 July 2011 (a few months before the trial). 102.Littmann’s explanation as to why the meeting agendas (both the marked and unmarked versions) were only disclosed shortly before the trial can be summarized as follows. Before December 2010, he thought he had not kept these documents. On his home visit to Germany in December 2010, he discovered hard copies of the marked-up meeting agendas. There he also found the electronic copies of the meeting agendas in his computer hard discs. The electronic copies were sent to the plaintiff’s solicitors in January 2011 whereas the hard copies were passed to them in mid-February 2011. 103.I reject the above explanation on the ground of inherently implausibility. As observed above, the series of meeting organized by Littmann:
Such being the case, it was only natural the records relating to those meetings (including the meeting agendas), being the records of such investigation, would be given to the plaintiff for his record and/or consideration (and further action, if any was deemed appropriate). At the very least, their contents must have been of interest to the plaintiff. 104.In this connection, I note that one part of his witness statement claims the reason why in late-May 2007 Littmann asked for a copy of the escrow agreement from Tang was:
The first part of the above quote (obtaining proper documentation) supports the assessment made in para 103 above. The second part of the above quote does not sit comfortably with Littmann’s personality outlined in para 105 below. 105.It is also important to note Littmann testified that he was:
and that:
106.In view of the matters set out above, I have doubt about their authenticity (and/or accuracy) and place no weight on the meeting agendas (both the marked and unmarked versions). 107.This, however, does not mean Littmann’s testimony should be wholly rejected. Where appropriate, those parts of his testimony which I find to be credible and reliable will be set out in relation to the individual transactions (under the heading “Findings of Fact” below). (d) Breeden 108.Champ Car was founded in the US in 2004 and it was sold to the famous IndyCar in 2008. Before the said sale, Champ Car was one of the open-wheel car racing series and it staged races in the US, Canada, Mexico, Brazil, Europe, Japan and Australia. 109.Breeden was Champ Car’s vice president and general counsel until June 2008. 110.According to him, motor racing sponsorship is a risky business. It involves large capital requirements; at the same time, returns from the business, though profitable over time, were unlikely to be short-term because of the need for market education of the audience, which could take a long time. 111.In May 2007, Champ Car entered into (i) an official promoter agreement and (ii) an international television agreement, with New Energy (a BVI corporate entity). In gist, New Energy was granted the television broadcasting rights. Part of New Energy’s own income would come from contracts between it and various provincial television stations in China. 112.Racing facilities in Zhuhai were secured from the racecourse owner by New Energy but Breeden was uncertain if New Energy had made the full contractual payment to the racecourse owner. 113.Breeden also mentioned the failure of:
114.Breeden’s testimony will be referred to under the sub-heading “(2) The Champ Car project” below where necessary. (e) Luu 115.To begin, I find Luu to be an untruthful and unreliable witness. 116.Some of Luu’s explanations bear the signature of contrivance. An example is Luu’s explanation as to why the plaintiff’s HK$73 million has been used other than for the purchase of the China Oil shares. 117.None of the said sum has been paid to Richtex (the owner of the China Oil shares); most of it was used for Luu’s personal purposes instead. Luu claims that his uncle, the beneficial owner of Richtex, consented to the sum being put to such use. It was thus in effect a loan between Richtex (or Luu’s uncle) and Luu. 118.However, despite the relatively large sum involved, there is no documentary evidence regarding the alleged loan. The plaintiff also points out that the terms of the loan are unclear. I agree these features are inherently implausible in the absence of further explanation (Luu does not offer any). 119.In basing the credibility assessment on the above example, a few words have to be said about the cash flow charts provided by the plaintiff. They were provided practically on the first day of trial. I understand they were compiled by plaintiff’s legal representatives from accounting records (or bank records, as the case may be) obtained as a result of specific discovery, or discovery orders against the bank (as the case may be). 120.No formal objections have been raised by the defence against the charts; however, their accuracy and completeness is not accepted. Given the short notice about them, the stance of the defence cannot be faulted. A better approach to adducing such materials might have been for them to be dealt with by forensic accounting experts (with the appropriate expert directions so that a reasonable opportunity would be given to all parties to deal with it). 121.Because of the above background, it is inappropriate to consider the weight to be given to the charts globally. What weight (if any) should be given can only be properly considered in the particular context in which the charts were relied upon (and together with the totality of the evidence relevant to that context). 122.During cross-examination, Luu was also asked about a number of court proceedings, both here and abroad (some are still pending). Luu was involved either through the companies he owned, or in his personal capacity. It is true the findings or comments made in earlier litigation are not binding. But Luu has not been able to satisfactorily explain some of the matters arising therefrom. I have borne this in mind when assessing whether Luu’s explanations given in relation to the individual transactions herein are credible. 123.Similar to the case of the plaintiff, there was the suggestion Luu has overstated his qualifications in public documents issued to potential investors. This has not been given great weight in the assessment of Luu’s credibility and reliability. (f) Kwok 124.Kwok has an accounting background. He practised mainly in areas relating to (i) listing applications of stock exchanges in the US and Canada, (ii) US and Canadian public company regulatory compliance, and (iii) corporate finance and management. 125.Kwok began working for Luu in a listing project in Canada in about 2005. He met Tang in 2006. Tang introduced the plaintiff to Luu and Kwok in late 2006. 126.In relation to this action, Kwok’s testimony covers:
127.Because of the more confined ambit of his testimony, this will be discussed under the three related transactions. 128.The plaintiff’s criticisms of Kwok’s testimony are:
(g) Tang 129.The plaintiff asks the court to approach Tang’s testimony in the following manner:
The background facts relied on are:
130.The plaintiff, however, invites the court to accept Tang’s testimony concerning the Settlement Agreement (see para 64, 65 and 70 above). This is because this part of Tang’s testimony coincides substantially with that of the plaintiff. Luu disagrees and contends Tang is either untruthful or unreliable about this. FINDINGS OF FACT (1) The Warderly Agreement 131.The matter has already been outlined at para 19 to 30 above and will not be repeated. 132.I agree with the defence this part of the plaintiff’s case is inherently incredible. 133.The plaintiff accepted in his testimony all along his investment decisions rested on his familiarity with the business managers and his knowledge of the business’ financial position. Despite these criteria, he knew nothing about Warderly (except perhaps it was heavily in debt at the time). Further, the plaintiff’s working capital was obtained at considerable costs (annual interests were payable thereon at a range between 13% and 20%) and yet the 2-year Warderly loan would only pay interest at 24% per annum. Finally, the right to convert the loan into Warderly shares would only be of value if Warderly remained solvent. 134.Hence, for the plaintiff to participate in the deal would have meant taking quite some risks for a modest return at best (and to do so in disregard of his own investment policy). 135.The documentation evidencing the Warderly loan is at best scant: only a draft agreement (which the plaintiff said was never circulated to him). There is no contemporaneous record of:
about the Warderly loan. 136.The following background is also important. Luu was back then only recently introduced to the plaintiff, and the plaintiff knew practically nothing about Luu (except Tang’s alleged claim that Luu was a multi-billionaire). Having considerable (and apparently successful) investment experience in a less developed financial market in Southeast Asia (relative to Europe), as well as in second- and/or third-tier listed companies, the plaintiff should be well aware of the investment risks. Moreover, a lack of proper documentation would create risks of its own. 137.The contents of the Littmann witness statement are also telling. Littmann described how he came to know of the various transactions: the Champ Car Racing project, the ListCo project and the China Oil shares. Having done so, this is how he described the Warderly Agreement:
138.What is striking is (i) Littmann’s apparent ignorance about the Warderly Agreement (until May 2008) despite his close relationship with the plaintiff (for which see para 97 above), and (ii) Littmann’s apparent failure to ask for briefing from the plaintiff about the Warderly Agreement; instead, he rather attempted to gain knowledge of it through the documents and enquiries with outsiders. 139.I also agree with the defence that, on the plaintiff’s own case, no valid claim can come out of the Warderly Agreement. Having accepted the suggestion of Luu and Tang to “count” the plaintiff’s investment in the Warderly Agreement towards his investment in the Champ Car Racing project, the proper inference is that the plaintiff has effectively “abandoned” his investment in the Warderly Agreement (in “exchange” for a stake in the Champ Car Racing project). 140.The only objective fact which may be viewed as supportive of the plaintiff’s case is the fund transfers to Stevenson, Wong (and/or Stevenson, Wong’s apparent involvement); Stevenson, Wong were only engaged in the Warderly transaction. 141.This fact should be considered together with the following (as has been pointed out at para 14 and 15, plaintiff’s reply submissions), “most of HK$23m went to … Ma [said to be the mastermind behind the Champ Car Racing project (see para 40 above)] and some was used to [make payment to Champ Car] by [New Energy’s predecessors FRC/Sino Sports]”. 142.Further, it is a common feature of the various transactions relevant to this action that, after the plaintiff’s funds were transferred, they would be put to various uses (for which the plaintiff had no knowledge). This feature is in fact relied upon by the plaintiff as supportive evidence of the defendants’ wrongdoing. 143.Admittedly there is no express evidence to explain this aspect (none of the relevant witnesses’ credibility is intact). But it cannot be ruled out that the fund transfers to Stevenson, Wong could well be yet another instance of the plaintiff’s funds being used for other purposes (in this instance, funds for the Champ Car Racing project was used for Luu’s Warderly project). In this connection, I note that Luu’s case is he was in need of funds for his personal investment project in Warderly (to act as a “white knight” of Warderly). 144.There are some other documents the status of which (in relation to this transaction) can be described as “mystical”:
First, the above loan documents are only drafts. Secondly, one of them appears to be unconnected with the Warderly Agreement. Thirdly, as stated above, the plaintiff himself does not appear to have any recollection about them (see para 137 and 138 above) (nor has he satisfactorily explained (if at all) how the draft documents were related to his case concerning this transaction). 145.Finally, Kwok testified in effect he was unaware of the plaintiff’s involvement in this transaction. Despite the plaintiff’s criticisms (see para 128 above and 188 below), I find no valid reason for disbelieving Kwok about this. 146.Further, compared to the plaintiff’s case, this part of Luu’s case (para 26 to 28 above) seems inherently more likely. (2) The Champ Car Racing project 147.The gist of the parties’ respective case has been set out in para 31 to 43 above. 148.Again, this part of the plaintiff’s claim lacks credibility. This aspect involves three causes of action (misrepresentation, breach of stakeholder’s duties (in contract and in tort) and total failure of consideration). They will be dealt with in turn. 149.The first cause of action lies in misrepresentation. At the time of the Car Racing Misrep (21 May 2007), the plaintiff has just been told what must have been disappointing (if not shocking) news that:
In short, the Warderly Agreement would appear to be a total loss for the plaintiff. 150.Even if the plaintiff had earlier been credulous, such a drastic change in the prospect of a project entered into only a few months earlier (and with Luu’s apparent financial capability) must have made him rather suspicious of the credibility (or at least reliability) of Luu and/or Tang. 151.Secondly, one part of the Car Racing Misrep is inherently unlikely (especially to a person experienced in investing in relatively risky markets and/or risky businesses): the claim that the Champ Car Racing project was so profitable the rate of return was 100% every 6 months (in other words, every $100 invested would become $200 after the first half-year, $300 after the first year, $400 after one and half years and so on (assuming no re-investment)). 152.Thirdly, and bearing in mind para 149 to 151 above, the plaintiff never sought, and neither Luu nor Tang ever offered, any documentary verification of the factual assertions in the Car Racing Misrep (para 34(1), (3) and (4) and 151 above), such as contracts, title documents, books and accounts and/or governmental permits/approvals (para 62, plaintiff’s witness statement). In this connection, Littmann said this in his witness statement:
The allegation that the plaintiff would refuse a suggestion for proper research and documentation is difficult to believe. 153.The addition in the plaintiff’s testimony of two meetings (both in early May 2007) and the suggestion that the Champ Car Racing project was always attractive to him (rather than being “thrust” upon him (see para 149 above)) further diminishes his credibility. 154.In relation to the two alleged meetings, this is quite possibly the plaintiff’s attempt to overcome the inconsistency between his original case that the Car Racing Misrep was made at a meeting on 21 May 2007 and Luu’s immigration records which show that Luu was abroad at the time. 155.It should also be noted that, according to the plaintiff’s witness statement, the Champ Car Racing project was first recommended to him in November 2006 but he considered it too “expensive” (a 10% stake for US$3.3 million (or about HK$26 million)) (para 27 thereof). The plaintiff has not explained why in May 2007 he no longer considered the same project to be expensive ( a 15% stake for HK$38.7 million (or about US$4.96 million)). If the explanation is his reliance on the Car Racing Misrep, the credibility of such an explanation is highly doubtful in view of para 149 and 150 above. 156.The defence also relies on inconsistencies between the plaintiff’s case and some of the contemporaneous documents. These include:
157.The plaintiff’s claim based on the allegedly unauthorized transfer of HK$15.7 million in May 2007 is directed against Zhong Yi (for breach of its stakeholder duties). 158.Several matters are relied upon by Zhong Yi:
159.Based on the above matters, Zhong Yi submits that this cause of action is unfounded. 160.This part of the plaintiff’s case is also founded in tort: breach of the stakeholder’s reasonable duty of care. Zhong Yi denies this and contends that the reasonable duty of care in tort cannot be wider than that in contract: Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80, 107; Henderson v Merrett Syndicates Ltd [1995] 2 AC 146, 193. 161.The third cause of action lies in total failure of consideration (see also para 37(d) above). This aspect rests on the following:
162.The defence contends that the totality of the evidence is insufficient to ground this cause of action. Parts of Breeden’s testimony suggest that the precise identity of “New Energy” was not a material part of the contractual relationship with Champ Car:
163.In brief, I agree with the defence contentions set out above. By virtue of the above matters, I do not find this part of the plaintiff’s case to have been established. 164.Further, compared to the plaintiff’s case, this part of Luu’s case (para 38 to 41 above) or Tang’s case (para 42 and 43 above) seems inherently more likely. (3) The ListCo project 165.This transaction has been summarized in para 44 to 55 above. The parties’ respective case can be found in that summary. 166.The payment of HK$73 million by the plaintiff between June and July 2007 is common ground; the main dispute concerns the purpose of the payment:
167.The plaintiff’s case is riddled with credibility problems. First, the plaintiff was not an investment novice in the Far East (particularly Hong Kong). As stated above, he has been investing in second- and third-tier listed companies in Hong Kong (and involved in the management of at least one). Secondly, an experienced investor such as the plaintiff would not act on vague representations such as depositing as much money as he could manage (in other words, an unspecified amount) to wait for an investment opportunity to appear (an indefinite period). Luu’s and Tang’s alleged open-ended promise to make up the money shortage for the transaction is equally incredible. 168.Besides inherent implausibility, the defence again relies on documentary evidence to refute the plaintiff’s case. 169.The plaintiff’s supplemental witness statement attributes the sum of HK$17 million to the Champ Car Racing project:
170.There were e-mails in August 2007 from the plaintiff which mentioned the sum of HK$17 million. When asked about them, the plaintiff testified that the sum was related to either the Champ Car Racing project or “the shell” (referring to the ListCo project). However, the contents of the e-mails were that he was to:
and
171.Based on the above, the defence submits that the plaintiff kept on changing this aspect of his case when he found the earlier version has credibility problem. 172.As stated earlier (para 55, 156(b) and 166(c) above), Tang’s understanding (or mistake, according to Luu) regarding the plaintiff’s HK$73 million transfer in his e-mail of 31 May 2007 renders the allegation of Tang making the ListCo Misrep unlike. Further, the plaintiff would have known from Tang’s e-mail Tang did not have accurate knowledge of the ListCo project. 173.This is particularly so when the contents of a hand-written note showing the detailed amounts for the ListCo project (called “the ListCo Flipchart” by the plaintiff and “the Flipchart” by Tang) are also taken into account. The date when the ListCo Flipchart was prepared is in dispute: the plaintiff alleges it was shown at the meeting in May 2007 whereas Tang contends it could not have been prepared until around August 2007. 174.The detailed figures in the ListCo Flipchart appear to show the different sources of funding for the acquisition; for example:
175.Irrespective of which version of events is correct (that is, whether the ListCo Flipchart was prepared in May 2007 or August 2007), HK$73 million was not mentioned in any way in the ListCo Flipchart (for example, HK$73 million would roughly be equal to half of HK$140 million (para 228 (2), plaintiff’s closing submissions)). 176.When cross-examined, the plaintiff testified that at the May 2007 meeting, he did not know that the information on it related to the ListCo project; nor was he aware of the identity of the acquisition target (ZZ Node). 177.The plaintiff also asserted that Luu and Tang must already have known of the transaction details at the time and deliberately concealed them from him. This assertion must be referring to the concealment of the ListCo project “game plan” by Luu and Tang during the May 2007 meeting. There is, however, no obvious reason why they should do so at the time. The plaintiff’s allegation that he was lured to pay as much as he could afford without knowing the details has already been rejected (see para 167 above). 178.I agree with the above submissions of the defence. By virtue of the above matters, I do not accept this part of the plaintiff’s case. 179.Despite the finding regarding this part of the plaintiff’s claim in para 178 above, I cannot be satisfied with this part of Luu’s case either (para 116 to 118 above). 180.There is a substantial overlap between the facts relevant to this transaction and those relevant to the China Oil shares (see the sub-heading “(4) The China Oil shares”). For this reason, I have taken into account the China Oil shares transaction when assessing credibility here, and making the above finding. (4) The China Oil shares 181.The summary of this deal has already been outlined at para 56 to 63 above and will not be repeated. 182.There are two main factual disputes: (i) whether the plaintiff was induced to take up the China Oil shares (irrespective of by way of purchase or for use as collaterals), and (ii) whether the shares were purchased or only used as collaterals. 183.China Oil was incorporated in Nevada, US in April 2006. Kwok testified in gist that it had option rights to buy oil plants in the Mainland, subject to funding. China Oil is now accepted to be “dead in the water”. 184.Such being the case, (irrespective of whether it was the June 2006 version or the March 2007 draft version) the China Oil strategic business plan was incorrect insofar as it claimed that China Oil had secured oil supply contracts and oil plants, and was expected to earn substantial profits. Luu’s alleged claim made during the day visit that the oil refineries were China Oil’s assets is also untrue (if he in fact made it). 185.Kwok’s testimony is relevant to this aspect. In June 2006, he helped Luu to work on the China Oil project, and was involved in the drafting of the June 2006 strategic business plan. China Oil began to be listed in the US in July 2007. 186.Kwok was introduced to the plaintiff by Tang in late 2006. He testified that the plaintiff knew China Oil was only a “start-up” company, and he reminded the plaintiff the oil refineries were only the planned acquisitions subject to fund availability. Thus, the plaintiff ought to be well aware of the investment risks, including those set out above. Kwok also pointed out the part of the June 2006 strategic business plan on risks:
(A similar risk statement also appears in the March 2007 draft strategic business plan) 187.Luu and Tang deny that representations have ever been made by either of them. 188.Despite the plaintiff’s criticisms (para 128 above), I find no valid reason to reject Kwok’s testimony concerning this aspect. The plaintiff’s other criticisms are that no other witness has testified to Kwok’s presence at the meeting, and that Kwok’s version of event is self-serving and was given late. 189.I have taken those criticisms into account when deciding to accept Kwok’s testimony. Specifically, the criticism that Kwok’s version was self-serving is hard to understand and has no valid basis. “Self-serving” usually means a statement being put forth to serve the statement-maker’s own purpose(s). There is no reason to think that Kwok has his own purpose(s) to serve in, or will benefit from, the outcome of this action. Delay by itself is not a good reason for disbelieving a witness, unless it is said to affect his reliability, or point to the possibility of after-thoughts, for example; none has been alleged here. 190.Taking into account also the plaintiff’s investment experience, I conclude that the plaintiff must have known that China Oil was a “start-up” listed company and there were risks involved in any investment in its business. I therefore do not accept the plaintiff’s claim he has been misled by the China Oil Misrep. 191.I turn to consider the nature of the China Oil shares. The defence relies heavily on the agreement dated 6 July 2007 entered into between the 3rd plaintiff and Richtex (the owner of the China Oil shares) (“the Richtex agreement”) as material for impeaching the plaintiff’s credibility (and by implication also that of Littmann and Kressig) regarding this aspect. The important point here is that the Richtex agreement was expressed to be for the sale and purchase of the shares, and not for using them as collaterals. 192.Despite their attempts to do so, neither the plaintiff nor Littmann has been able to satisfactorily explain away the Richtex agreement. 193.The plaintiff also entered into an agreement with Kressig in August 2007 whereby Kressig agreed to act as the 3rd plaintiff’s shareholder and director (as the plaintiff’s nominee) (“the private agreement”). The feature of the private agreement relied upon by the defence is the risk allocation provisions therein: Kressig (and possibly also the plaintiff) seemed to be concerned with the amount of risk involved in the China Oil transaction. The concern is inconsistent with a deal where the China Oil shares were being used as collaterals only. 194.An e-mail dated 16 June 2008 from Littmann to Tang also made no mention that the deal was for collaterals. Instead, Littmann said therein the plaintiff had paid for the shares. Littmann also noted in his meeting agenda of 21 May 2008 that the plaintiff had “bought” the China Oil shares. 195.There were also some e-mails from Tang to the plaintiff in July 2008 which may shed some light on this dispute. In an e-mail dated 5 July 2008 Tang said:
196.Apart from the above, the supposed terms of the agreement for share collaterals are unknown; neither the plaintiff nor Littmann testified to this aspect. 197.Littmann’s attempt to pledge the China Oil shares to a third party in March 2008 is inconsistent with the shares being collaterals only. 198.With the above matters in mind, I do not accept the plaintiff’s claim that the China Oil shares were for use as collaterals only. 199.The defence also points out that the plaintiff has not sought to set aside the Richtex agreement. And even if such relief is sought, the necessary party, Richtex, has not been joined (an earlier application for joinder has been refused in August 2011). 200.It is further argued that the actual contracting party was the 3rd plaintiff and not the plaintiff; at the material time, Kressig (and not the plaintiff) was its sole director. The board resolution of 6 July 2007 authorized the plaintiff to sign documents to acquire the China Oil shares for the 3rd plaintiff (rather than to use them as collaterals). 201.As I have been able to determine this part of the plaintiff’s claim based on the above factual findings, it is unnecessary to deal with the arguments set out in para 199 and 200 above. 202.As regards the plaintiff’s claim against Zhong Yi for breach of stakeholder’s duties, the plaintiff frankly admits there was no document to evidence the stakeholder relationship (para 328, plaintiff’s closing submissions). He relies on the e-mail correspondence in May, August and September 2007 and July 2008 as evidence of such relationship. 203.I agree with Tang there are various difficulties with regard to this part of the plaintiff’s claim, including the following. First, the scope of a stakeholder’s duties has not been defined by document(s); hence, there is no proper basis to found the duties set out in the plaintiff’s pleadings. The relationship between the plaintiff and Tang is insufficient to found such duties either. Finally, the evidence adduced is insufficient to ground a case that Tang has:
(In relation to the last-mentioned point, as stated above, the China Oil Misrep allegation against Tang has been abandoned (para 62, plaintiff’s reply submissions)) 204.The plaintiff asserts that there was an oral agreement to “extend” the Champ Car Racing project escrow agreement to the ListCo project (relying on a Zhong Yi letter dated 27 September 2007). I agree with Zhong Yi that this assertion is no more than an afterthought. (5) The Settlement Agreement 205.This has been set out in para 64 to 70 above and will not be repeated here. 206.As noted above, Tang agrees with the plaintiff a settlement agreement has been reached between the plaintiff and Luu on 24 June 2008. The detailed account is set out in Tang’s witness statement. Briefly:
207.Luu denies this part of the plaintiff’s claim, relying on provisions in two letters of understanding (respectively dated 10 July 2008 and 4 August 2008) which he says contain contingent terms. The 4 August 2008 document was also signed by the plaintiff. The terms relied upon include:
208.Luu claims that no purchase price was agreed upon and so the letters of understanding lapsed. 209.Luu also says that Tang only attended the meeting of 24 June 2007 and was unaware of the subsequent developments regarding the discussion between the plaintiff and Luu. Further, Tang has an interest in this part of the plaintiff’s case because a settlement agreement would “get him off the hook”. 210.Besides the above, there are other conflicting documents (para 211 and 212 below). 211.The plaintiff’s e-mail of 25 June 2008 to Luu, Tang and others shows his claim that an agreement has already been reached. The plaintiff said at the end of the e-mail:
There was no contemporaneous denial in writing of the plaintiff’s understanding. 212.On the other hand, there were e-mails from Luu and Tang as late as July 2008 suggesting that no agreement has been reached:
(see also Tang’s e-mail of 5 July 2008 referred to in para 195 above) 213.Because of the above, I cannot be satisfied with either the plaintiff’s case (para 64 above) or Luu’s case (para 66 to 69 above). Tang’s description that 4 August 2008 document was evidence of the detailed arrangements for carrying out the agreement reached in June 2008 is inconsistent with the above. (6) Luu’s counterclaim 214.Luu’s counterclaim has been summarized in para 71 to 74 above. 215.As stated above, I do not accept Luu to be an honest or reliable witness. Further:
(7) Indemnity/contribution proceeding 216.The gist of this has been set out in para 75 to 77 above. 217.In short, I accept Zhong Yi’s case and do not accept Luu’s. 218.Para 76 and 158(1) to (5) above are repeated in relation to HK$15.7 million and para 50 and 76 above are repeated in relation to HK$73 million. Further, I also agree with the following matters set out in Tang’s closing submissions (para 170 thereof):
219.Having so concluded, because I am not satisfied that the plaintiff has establish his case against Zhong Yi, it is unnecessary to grant any relief here. CONCLUSION 220.In view of the findings made above, it is possible the plaintiff’s capital has been lost in failed investment projects. Accordingly, the plaintiff’s claim and Luu’s counterclaim are dismissed. 221.No relief is granted in relation to Zhong Yi’s claim for indemnity by, or contribution from, Luu. OTHER MATTERS 222.As stated above, the plaintiff alleges that Zhong Yi was his adviser and escrow agent. In addition, the plaintiff took out a summons on 17 January 2012 (one day before the parties’ closing submissions) for leave to re-re-amend the statement of claim. 223.It seeks to expand the plaintiff’s above case to Tang in relation to the Champ Car Racing project. The following “particulars” are proposed:
224.I agree with Tang that it is too late for the plaintiff to do so. Tang raises the usual complaints such as prejudice to him and the like. They will not be repeated. The application for leave is accordingly dismissed. 225.Further, the matters set out in the proposed “particulars” have already been adduced in evidence and set out in the parties’ respective submissions. To avoid doubt, those matters have already been considered. 226.Finally, the parties’ closing submissions also mentioned various other points. These have not been expressly set out or dealt with in the above headings and sub-headings. This is so only because of the need to balance between the length of the judgment and its comprehension. It does not mean those other points are thought to be irrelevant (or have been overlooked). To avoid doubt, those other points have also been considered. COSTS ORDER NISI 227.There is no apparent reason to depart from the usual rule that costs should follow the event. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that:
The costs in sub-para (b) and (c) above are to be taxed if not agreed with certificate for two counsel.
Mr Thomas Lee & Ms Joyce Leung, instructed by Haldanes, for the plaintiffs Mr Kenneth C L Chan & Mr Billy N P Ma, instructed by Wong & Chan, for the 1st defendant Mr Douglas Lam & Ms Sabrina Ho, instructed by Chan, Tang & Kwok, for the 2nd and 3rd defendants Please refer to CACV218/2012 for the relevant appeal(s) to the Court of Appeal. Please refer to CACV218/2012 for the relevant appeal(s) to the Court of Appeal. Please refer to CACV218/2012 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 815/2009