Peng Fengsheng v. Wong Tak Hung

HCA 1336/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1336 OF 2009

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J U D G M E N T

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Introduction

1.This action concerns events which took place in 2003, the year when Hong Kong and Guangzhou were affected by the outbreak of SARS.  The economy took a set back at the time and the property market was slow.  The dispute in this case arose out of an auction in Guangzhou where a commercial building called York Point Plaza (“the Property”) was sold. 

2.In short, the plaintiff (“Peng”) said that he and the defendant (“Wong”) had an oral agreement to jointly acquire the Property.  Having succeeded in doing so, Peng then had to withdraw from the venture and the shares of his investment vehicle (Huge Faith Holdings Ltd (“HF”)), which was intended to be used to hold his interest in the venture, were sold to Wong for HK$12.5 million under another oral agreement. In breach of the agreement, Wong has failed to pay the purchase price despite having received the shares of HF.  It will be clear from the discussions below that the resolution of the dispute here turns upon primarily the credibility of Peng and Wong.

The plaintiff’s case

3.Peng’s evidence is that he learned about the auction of the Property in about May 2003 from someone he knew in the local government.  The Property was an incomplete project and it was being sold under an order from The Intermediate People’s Court of Guangzhou City.  The “intended price” for the Property was not less than RMB690 million. Peng was interested in the Property and he carried out various “preliminary works” with the view to acquiring it.

4.Peng’s initial plan was to acquire the Property jointly with a friend (Cheng Tung Leong[1] (“Cheng”)) because he did not have sufficient funds for the acquisition.  However, the acquisition was beyond their means and Wong, Cheng’s business partner, was introduced by Cheng to join them in the venture.  Wong was interested in the Property and after discussion it was agreed that Peng would continue with the preliminary works for which he would be paid.  Further, if they succeeded in acquiring the Property (at the right price), a new joint venture company would be formed to hold it and to manage the business to be generated with it (“the Business”).  The shares of that company would be 10% owned by Peng and 90% owned by Wong (Cheng’s shares would come out of Wong’s 90% and it was a matter between the two of them).

5.According to Peng, the most important part of his preliminary works was the negotiations with the government to reduce the price of the Property.  There is considerable obscurity as to what the negotiations were intended to achieve and what was indeed achieved.  I shall come back to these matters in the analysis of evidence.  For the present purpose, it suffices to note that according to Peng he succeeded in reducing the price to RMB550 million, and Wong was very pleased with the achievement. 

6.The auction took place on 24 October 2003.  One of Wong’s companies, 萬菱實業（深圳）有限公司 (“S”), was used for the purpose.  It was a Dutch auction (open descending price auction).  The bidding was opened at RMB650 million, there was no taker until the price dropped to RMB548 million and at which point S entered and succeeded with its bid[2].

7.It is undisputed that various expenses had been incurred prior to and shortly after the auction, namely, an auction deposit of RMB20 million, auction fee of RMB13.7 million and tax in the sum of RMB16.44 million.  Peng did not contribute to any of such payments.

8.On 3 November 2003, HF was incorporated.  Peng owned 9,999 out of 10,000 shares of that company.  He and Chan Chow Tong (an employee of Wong who owned the remaining one share (“Chan”)) were the directors of HF. 

9.On 1 December 2003, S, Tat Yeung Holdings Ltd (Wong and Cheng were two of the three shareholders of that company and their shareholding were respectively 40% and 20%) and HF entered into a joint venture agreement (“Joint Venture Agreement”) for the purpose of establishing a new joint venture company in Guangzhou – 廣州市萬菱置業有限公司 (“G”).  The shares of G would be allocated to those companies in the respective percentage of 30, 60 and 10.  Peng’s case is that his 10% interest in G would reflect his interest in the Property.  It was intended that the Property would be injected into G. 

10.However, before the establishment of G was approved by the authority, disagreement had arisen between Peng and Wong regarding the operation of the Business.  As a result, Wong suggested that he would buyout Peng’s interest in the Property (or as put by Mr Wong, who appeared for Peng, “the right to invest in the Project”).  Peng said that on 18 December 2003 at San Diego Hotel in Jordan, Hong Kong, he had a discussion with Wong concerning the buyout.  It was orally agreed that all his shares in HF would be sold to Wong at the price of HK$12.5 million to be paid to him 120 days after the transfer of the shares. 

11.On 20 December 2003, Peng came to Hong Kong with a friend, Dang Weixiang (“Dang”), to meet with Chan for the purpose of signing the share transfer documents.  Another friend of Peng, Wong Wing Hung (“WH Wong”), was also present at the time.  It is Peng’s evidence that a statement was made by Chan during the meeting confirming Wong’s agreement to the buyout at HK$12.5 million (“Chan’s Statement”).  Peng also said that on that day a written confirmation (“Written Confirmation”) was drafted by Dang to record the buyout agreement and that he had a telephone conversation with Wong whereby Wong promised to sign the Written Confirmation and return it to him later.  On the basis of Wong’s promise, the transfer documents were then signed by Peng and returned to Chan together with the Written Confirmation for Wong’s signature.   

12.Peng said that Wong reneged on his promise to sign and return the Written Confirmation.  He also failed to pay the purchase price for the shares despite repeated demands by Peng. 

13.Dang and WH Wong were also called to give evidence for Peng.  Their evidence concerned the events of 20 December 2003. The last witness for Peng was Zhang Jianfeng (“Zhang”).  He worked for the auction house in question and was in charged of the auction of the Property at the material time.  His evidence was short and touched upon the pre-auction enquiries made with him by Peng and Cheng concerning the Property and the participation of S as one of the bidders. 

The defendant’s case

14.Wong said that he got to know Peng via an introduction by Cheng.  Cheng had indeed told him that Peng knew about the sale of the Property.  He knew from Cheng that the price of the Property was around RMB600 million but he thought that it should only be purchased if the price was RMB500 million odd.  Wong denied that he had any agreement with Peng to jointly bid for the Property.  Instead, it was a business venture of his family (including himself) and Cheng and the decision for which did not concern Peng.  Prior to making the decision to participate in the auction, Wong had visited the Property and spent about 1 to 2 hours to inspect it and assess the amount of work required to put it into a lettable condition. 

15.For purpose of the auction which he did not attend, he gave instructions to Cheng to bid for the Property at about RMB550 million.  After the acquisition of the Property, in early November 2003 Peng suddenly asked, via Cheng, to participate in that venture.  Subsequently, Wong agreed with Peng that he could take up 10% interest in the same and the Joint Venture Agreement was signed.  However, in return for his 10% interest, Peng was required to contribute to the purchase price of the Property, the commission to the auction house and the tax in the same proportion.  Under the Joint Venture Agreement, Peng was required to pay RMB20 million in return for the 10% shares in G.  Whilst the evidence is not entirely clear, it appears that the RMB20 million would be part of Peng’s total contribution for his 10% interest. 

16.Wong’s evidence is that neither Peng nor HF had the financial ability to take up the 10% interest and the Joint Venture Agreement was eventually abandoned for that reason. 

17.Wong said that in about December 2003 Peng told him, via Chan, that by reason of his withdrawal from the venture he had wasted the money in acquiring HF and suggested that his shares in that company be purchased by Wong at HK$9,999.  Wong agreed. However, he disagreed that the purchase price was HK$12.5 million and he had never seen the Written Confirmation or heard about it from Chan. 

18.Two other witnesses were called for Wong, namely, Chen Sufan (“Chen”) and Cheng.  Chen used to work for the previous owner of the Property.  He became an employee of G in April 2004.  His evidence was mainly about the auction during which he was present. He said that there were two or three bidders and that Peng appeared to be attending the occasion as a representative of another bidder, not as a representative of Wong or S. 

19.Cheng’s evidence was that Peng told him about the sale of the Property in the middle of 2003.  Peng was hoping to be given a contract for some of the renovation work in the event that Cheng and his associates succeeded in buying the Property.  Cheng told Wong about the Property and Wong was interested.  He then brought Peng to Hong Kong to meet with Wong and to discuss about the details of the auction.  Eventually, he and Wong together with Wong’s family decided to co-operate and make a bid for the Property in the name of S. 

20.Cheng said that he was never told by Peng about any negotiation with any government official concerning the auction.  Cheng also said that at the beginning of November 2003 Peng suddenly requested to join in the investment.  However, due to the lack of funding, Peng subsequently withdrew from the same.

21.Before I proceed with the analysis, I should mention that in the course of Cheng’s evidence he referred to certain incidents involving, inter alia, Peng and Wong whereby Wong had agreed to pay Peng a total sum of RMB7.5 million as compensation for Peng’s alleged loss in the acquisition of the Property.  There are in the bundles two confirmation letters and one consultation agreement relating to those matters[3].  Originally, there were disputes in respect of these matters.  However, at the beginning of this trial, the parties had agreed to the deletion of the pleadings in relation to these matters such that they no longer constitute an issue before this court. 

Analysis

22.Peng was a breathtakingly poor witness.  He stumbled at almost all questions on the important details of his case.  At times, his answer was simply incomprehensible.  Sometimes, instead of answering the question he would give some sort of explanation which had nothing to do with the question asked.  This was done despite the fact that it was explained to him by this court on a number of occasions that he should first answer the question and then, if necessary, provide his explanation.  On some other occasions, Peng said that he could not provide an answer without going into the background facts, and when he did so he simply repeated the story stated in his witness statement.  With respect, there is no doubt in my mind that Peng had difficulties answering many of the questions asked in cross-examination and the above reflected his attempts to avoid the questions.

23.I should point to a few examples to highlight the fact the Peng’s case does not stand up to scrutiny when he was taxed on some of the important details.  Firstly, Peng was asked why, according to his understanding, Wong had to co-operate with him on the Project.  Peng answered that it was his project.  By that he meant that he had negotiated with the government and carried out all the preliminary works.  The negotiations ultimately resulted in an agreement over the price of RMB548 million.  Given that the Property was intended to be and was sold by public auction, it was not surprising that Peng was taxed on his answers.  After further questions were asked, Pend said that Wong gave him a clear indication that part of the Property might require renovation work and therefore the price should be lowered to RMB630 million (from the “intended price” of RMB690 million).  Wong asked him to negotiate the price with the government, and after some negotiations the government agreed to a reserved price of RMB548 million.  Peng confirmed that his main contribution was in the negotiations with the government. 

24.When further questioned, Peng jumped back and forth a number of times as to what was the reserved price – RMB550 million or RMB548 million.  At the end, he did not manage to make clear which was in fact the reserved price.  He said that it was not the case that the government was unwilling to sell below the reserved price and that S had succeeded in a bid which was lower than the reserved price (one might think that it was implicit from this answer that the reserved price was RMB550 million[4]).  However, a few questions later, Peng agreed with the proposition that the reserved price was internally fixed by the government as the lowest price. 

25.Further, in respect of the discussions with Chow Yiu Ming, a senior official from the government, Peng said that no oral agreement was reached on the reserved price.  He then said that they had an oral consensus on that issue.  After clarification, he said that oral agreement and oral consensus amounted to the same thing. 

26.The confusion did not stop here.  When challenged in cross-examination that the government would sell to any bidder at the auction who would put up a price in excess of RMB550 million, Peng initially said that he had no control over the government.  He then changed his mind and said that the consensus reached with the government meant that it would only sell to S.  When given the opportunity by the court to explain the u-turn, Peng provided an incomprehensible answer. 

27.Secondly, in respect of the preliminary works, Peng said that such works included investigation of the Project; obtaining information of the auction; investigating the surrounding area of Property, the rental market, and the renovation work required for the Property.  Peng said that such works were carried out at the request of Wong.

28.When Peng was asked as to the documentary support for his works, he relied upon two documents.  The first was a brochure like document for the promotion of the Property the cover of which suggested that it might have been produced by Guangzhou Property Exchange[5]. When pressed, Peng conceded that anyone interested in the Property could have obtained a copy of that document.  However, he said that he had produced some of the data contained in that document.  I find that allegation highly unlikely given that Peng had not participated in any land development business prior to 2003 and there was no suggestion that he had any relevant qualification on those matters.  More likely than not, it was a convenient lie made up by Peng. 

29.The second document was a Market Assessment Report for the Property which was produced by Guangzhou China Land Property Co Ltd[6] (“GCL”).  Peng said that he, Wong and Cheng instructed GCL to produce the report and he had paid RMB80,000 for the service.  However, there was no suggestion in the report that it was produced on the instruction of any person or company.  Normally, such an acknowledgement would be present in a conspicuous place in the report.  Further, Peng had no proper explanation to the challenge why such a report was required when he had reached a consensus with the government which would secure the success of S’s bid at the auction.  Furthermore, Peng had to retract his evidence yet again when he said that the report provided a valuation of the Property (it did not)[7]. 

30.Thirdly, one of the issues raised by the defence is that Peng had insufficient funds to take up his 10% investment in G.  On that issue, Peng was taken to a previous affirmation of his in which he tried to contradict the suggestion that he was lacking in funds by referring to a bank account of HF in which there was a balance of HK$10,000,850[8]. It turned out that HK$10 million of that sum was in fact borrowed from one of Wong’s companies, Wong Sun Hing Ltd.  I cannot understand Peng’s purported explanation on why he made used the money borrowed from Wong’s company to seek to demonstrate that he had no financial difficulty.

31.Further, Peng said that at the time of the borrowing he actually had more than the equivalent of HK$10 million in Renminbi in the Mainland.  When asked why he did not give Wong the Renminbi in Mainland in exchange for the HK dollars he needed in Hong Kong instead of having to borrowing the HK$10 million, he initially gave a long answer which suggested that it could not be done lawfully due to certain exchange control.  Later, Peng conceded that he could have done so and indeed he did tell Wong that he could repay him in Renminbi anytime but Wong did not ask for the money.  I believe this to be a good example where Peng tried to fend off the question by referring to some Mainland regulation or practice.  Lastly, no document has been produced by Peng to try to demonstrate his financial position at the material time despite his suggestion that he was in a position to do so.

32.Fourthly, Peng’s evidence was that he asked Wong for HK$15 million for the sale of his shares in HF but Wong counter offered HK$12.5 million and that was the price agreed upon.  When asked by this court if he knew the basis of Wong’s counter offer, Peng initially said that it was a matter of the exchange rate.  HK dollars being more valuable than Renminbi at the time and HK$12.5 million equalled RMB15 million.  In other words, Wong did not bargain with him on the price.  Later, probably having realised that his asking price was actually in Hong Kong dollars, Peng changed his evidence and said that he did not know the basis of Wong’s counter offer and that he had misunderstood the question.  To be fair to Peng, after he explained that it was a matter of exchange rate, it was the court who asked him whether it was the case that HK$12.5 million equalled RMB15 million.  I therefore bear in mind that Peng might have been misled by a question from the court.  On the other hand, looking at this part of the evidence in its entirety, I have little doubt that this is another example of Peng’s lack of credibility.

33.Last but not least, I should mention two further points.  Firstly, I accept that there were documents which showed that Peng had participated in certain post-auction works (see C/478 and 342).  That is consistent with the fact that he was eventually paid RMB7.5 million for certain services he had provided. Secondly, I also accept that (putting aside questions of legality or propriety) if in fact Peng had managed to elicit from the government the reserved price and managed to have it lowered, it would be a useful piece of information for any potential bidder. 

34.For the above reasons, I have no hesitation in rejecting the evidence of Peng as that of an unbelievable witness. 

35.It follows from the rejection of Peng’s evidence that his case must fail.  In truth, the evidence of his witnesses is of marginal relevance and cannot resurrect his case. However, for completeness I shall deal with the rest of the evidence briefly. 

36.It may be said that Dang and WH Wong had no reason to be untruthful with their evidence.  However, in respect of Chan’s Statement which both of them had allegedly heard, I am sceptical about their recollection of this solitary statement after so many years.  As regards the Written Confirmation, firstly, it was based on what Peng said to Dang (the drafter) and therefore self-serving.  Secondly, as highlighted in the cross-examination of Dang, the Written Confirmation had failed to record the alleged oral agreement on 18 December 2003.  Instead, it purported to take effect upon signing by both sides.  That is inconsistent with Peng’s case.  I have another reason to doubt WH Wong’s evidence.  According to Peng’s pleaded case, he was not present on the 20 December 2003[9]. For these reasons, I do not place much weight on the evidence of Dang or WH Wong.  With respect, the evidence of Zhang is of little relevance. 

37.Wong was not a particularly impressive witness because his recollection of the events was poor.  On the other hand, Wong was clearly the boss and much if not all of the works were delegated to his staff.  Further, he is not a highly educated man and was not keen to be involved with paperwork.  I bear in mind some of the criticisms made by Mr Wong in respect of Wong’s evidence, eg, the lack of detailed explanation on how the bid price of RMB550 million was arrived at and the inconsistency between Wong’s evidence on the capital contribution which Peng had to make and the terms of the Joint Venture Agreement.  However, I am of the view that Wong’s evidence had withstood the test of cross-examination and his demeanour did not suggest that he was a dishonest witness.  On balance, I am inclined to prefer his evidence over that of Peng’s. 

38.I do not find Chen’s evidence to be of much help.  It is actually undisputed that S was represented at the auction by three persons including Cheng (but excluding Peng).  Peng was sitting at another table with other people. 

39.I find Cheng to be fairly straightforward and honest with his evidence.  Like Wong, his evidence stood up to the test of cross-examination and I am also inclined to accept his evidence. 

Conclusion

40.In the premises, this action is dismissed with costs to be taxed if not agreed.  I decline to grant a certificate for two counsel in light of the issues and the lack of complexity.

Mr Martin Wong, instructed by Chong & Partners, for the plaintiff

Mr Peter Ng SC and Mr Victor Cheung, instructed by Chong, Fu & Co, for the defendant