ALLIED SUCCESS CREATION LTD v. CHEUNG HON KUEN also known as MICHAEL CHEUNG AND OTHERS

CACV 77, 81 & 213/2015
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 77, 81 and 213 OF 2015

(ON APPEAL FROM HCA NO. 451 OF 2010)

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REASONS FOR JUDGMENT

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Hon Cheung JA :

I. Background

1.1  The plaintiff was the owner of Portion B of Shop No. 3, the Ground Floor of Chung On Building, Sha Tsui Road, Tsuen Wan, New Territories (‘the property’).  The plaintiff was controlled by Mr Lei Im Va (‘Mr Lei’) who is a seasoned investor in shop premises in the local real estate market.  The 1^st and 2^nd defendants are estate agents who controlled the 4^th defendant, an estate agency.  

1.2  Mr Lei was interested in selling the property.  The property was put on the market since April 2008 and the asking price was $30,800,000 in March 2009.  The plaintiff’s property manager faxed a list of properties including the property to estate agents (including the 1^st, 2^nd and 4^th defendants) to find buyers or tenants.  The property was listed for sale at $30,800,000 or monthly rental at $125,000.

1.3  On 15 July 2009, through the 4^th defendant, the plaintiff agreed to sell the property to the 5^th defendant for $20.5 million and entered into a provisional sales agreement with the 5^th defendant (‘the Provisional Agreement’).  The 5^th defendant was a company controlled by the 1^st and 2^nd defendants.

1.4  The evidence showed that on 11 July 2009 (i.e. before the entering into of the Provisional Agreement), the 1^st, 2^nd and 4^th defendants had already secured a provisional tenancy agreement (the ‘Provisional Tenancy Agreement’) for the lease of the property by the 5^th defendant (as landlord) to a Mr Tse Wan Biu (as tenant) at the rent of HK$100,000 per month for a term of three years with an option to renew for another three years (‘the new tenancy’), without prior notification or consultation with the plaintiff at all.  At the time of the execution of the Provisional Tenancy Agreement, the 5^th defendant had not even been incorporated and the plaintiff had not even agreed to sell the property.

1.5  On 20 July 2009, five days after the sale between the plaintiff and the 5^th defendant, the latter entered into an agreement to sell the property (with tenant) to a sub-buyer called Henmax Investment Limited (‘Henmax’) for $25 million, thereby making a profit of $4.5 million.

1.6  The 3^rd defendant was employed by the 4^th defendant as a marketing assistant and was the niece of the 1^st defendant.  Although the 5^th defendant was controlled by the 1^st and 2^nd defendants, the 3^rd defendant was put up by the 1^st defendant as the sole director and shareholder of the 5^th defendant.  The company secretary of the 5^th defendant was a Mr Chu who was a part-time accounts clerk employed by the 4^th defendant.  The Provisional Agreement was signed on behalf of the 5^th defendant by one Mr Ho who was employed by the 4^th defendant as an accounts clerk and the personal assistant of the 1^st defendant. 

1.7  At trial, it was agreed that the market price of the property with tenant at the material time was $28.9 million.  On the day the Provisional Agreement was signed, the 2^nd defendant had been informed that a bank had valued the property at $30 million. 

1.8  In March 2010, the plaintiff commenced the present action, relying on the following causes of action :

1)  Breach of fiduciary duty and breach of contract by the 4^th defendant.

2)  Dishonest assistance by the 1^st, 2^nd and 5^th defendants.

3)  Fraudulent misrepresentation by the 1^st, 2^nd and 4^th defendants.

4)  Conspiracy to injure/defraud by all defendants.

1.9  The plaintiff contended that with the new tenancy secured, the market price of the property would be increased significantly and would have been more than the price at which it sold it to the 5^th defendant at the time of the Provisional Agreement.

1.10 The Judge dismissed the plaintiff’s claim against the 3^rd defendant but found for the plaintiff against the other four defendants.  The Judge awarded a sum of $8,400,000 for the plaintiff against the four remaining defendants.  This sum is the difference between the market value of the property at $28,900,000 and the sale price of $20,500,000. 

1.11 The four defendants appealed :

1)  CACV 77/2015 is the appeal by the 1^st and 5^th defendants.

2)  CACV 81/2015 is the appeal by the 4^th defendant.

3)  CACV 213/2015 is the appeal by the 2^nd defendant.

1.12 Although the defendants appealed both on the finding of liability and damages, at the hearing of the appeal, Mr Lin and Ms Chow for the defendants conceded the issue of damages and only proceeded to challenge the finding of liability.  This Court dismissed the defendants’ appeals with costs to be paid by the defendants to the plaintiff together with certificate for two counsel.  I now give reasons for our judgment.

II.  Claim against the 1^st, 2^nd and 4^th defendants

2.1  The plaintiff contended that the 1^st, 2^nd and 4^th defendants had been guilty of misrepresentation and concealment in arranging the sale of the property.  If not for the misrepresentation and concealment, the plaintiff would not have sold the property.  The plaintiff further contended that the 1^st, 2^nd and 4^th defendants had been in breach of the fiduciary duty they owed to the plaintiff, by putting themselves in a position of conflict and obtaining secret profits from the transaction.

1)  Misrepresentation

2.2  The plaintiff contended that the 1^st, 2^nd and 4^th defendants had made the following misrepresentations.

2.2.1 13 July 2009

1)  Despite efforts on their part in marketing the property for a long time and also lengthy searches for interested tenants and purchasers, they were unable to find any suitable purchaser or tenant for the property.

2)  The prospect of the plaintiff being able to sell or lease the property at or close to the plaintiff’s asking price/rental at any time soon was extremely low.

3)  Despite the market conditions, they received an offer from an interested purchaser who was willing to purchase the property for HK$19,800,000.

4)  The interested purchaser’s intention was to purchase the property for self use.

5)  When Mr Lei asking whether such offer from the interested purchaser could be improved, the 2^nd defendant stated that HK$20,500,000 was the maximum that the interested purchaser was willing to pay for the property.

6)  The interested purchaser was very sincere in wishing to purchase the property and the offer was a very attractive one in light of the market conditions at the time such that the plaintiff ought to give serious consideration to it.

2.2.2  14 July 2009

1)  When Mr Lei told the 2^nd defendant that the plaintiff would not be willing to sell the property for HK$19,800,000 and asked whether the interested purchaser could improve its offer, the 2^nd defendant told Mr Lei that he would try to persuade the interested purchaser to increase its offer to HK$20,500,000 but he could not guarantee that the purchaser would be willing to do so.

2.2.3  Afternoon of 14 July 2009

1)  The 2^nd defendant explained to Mr Lei that the property was in fact intended to be purchased by a father to be let to his son and his son’s business partner, to be used as a restaurant, and hence the purchaser requested to include the following additional terms for the sale and purchase of the property (the ‘additional terms’) in the Provisional Agreement :

i) that the purchaser may request an earlier completion date upon giving seven days’ written notice to the plaintiff;

ii) that the purchaser may, upon signing of the formal sale and purchase agreement, start renovating the property; and

iii) that the purchaser may let out the property and sign a lease with the tenant after signing the Provisional Agreement.

2.2.4  15 July 2009

1)  The 2^nd defendant produced a cashier’s order for HK$300,000 and informed Mr Lei that he had already done his best to persuade the 5^th defendant in accepting the counter-offer at HK$20,500,000, and even waived all his commission otherwise receivable from the 5^th defendant.

2)  The 2^nd defendant reiterated to Mr Lei that the 5^th defendant was very sincere in wishing to purchase the property and it was a very attractive offer in light of the market conditions at the time, and urged the plaintiff to sell the property to the 5^th defendant for HK$20,500,000 and sign the Provisional Agreement as soon as possible before the purchaser changed its mind.

3)  The 2^nd defendant also told Mr Lei that the 5^th defendant was only willing to pay HK$300,000 as initial deposit for the purchase of the property. 

4)  The 2^nd defendant further informed Mr Lei that the 5^th defendant had taken the trouble to issue a cashier’s order to pay the initial deposit instead of using a bank cheque to show its sincerity in purchasing the property and therefore Mr Lei would not need to worry about any risk of it being dishonoured upon presentation for payment.

2)  Concealment

2.3  The plaintiff further pleaded that the 1^st, 2^nd and 4^th defendants had deliberately concealed the following information from it :

1)  The true relationship and connection of the 1^st, 2^nd and 4^th defendants with the 5^th defendant, in particular, that the 1^st, 2^nd and 4^th defendants are the beneficial owners and controllers of the 5^th defendant which they procured to be incorporated for the purpose of acting as purchaser of the property from the plaintiff;

2)  the fact that the 1^st, 2^nd and 4^th defendants stand directly to benefit from the sale of the property by the plaintiff to the 5^th defendant;

3)  the fact that at the time of the Provisional Agreement, the 5^th defendant had not even been incorporated and did not even exist, and thus did not have legal status to enter into the Provisional Agreement and could not have been in a position to pay the agreed consideration;

4)  the fact that a new tenancy had already been secured and the provisional tenancy agreement had already been entered into on or about 11 July 2009 with the 5^th defendant as the landlord even though it had not even been incorporated at the time and did not have title to the property;

5)  the significant increase in the market price of the property as a result of the new tenancy having been secured;

6)  the price at which the plaintiff agreed to sell the property to the 5^th defendant i.e. HK$20,500,000 was substantially below the property’s market value at the time of the provisional agreement and the property could easily have fetched a higher price in the market at the time; and

7)  the 1^st, 2^nd and 4^th defendants (through the 5^th defendant) made a profit of HK$4,500,000 from the sub-sale to Henmax, and also stood to benefit further from the commission earned from Henmax in the sum of HK$175,000 pursuant to the sub-sale provisional agreement.

3)   Breach of fiduciary duty

2.4  The plaintiff contended that the 1^st, 2^nd and 3^rd defendants perpetrated a fraudulent and premeditated scheme to defraud the plaintiff by procuring the plaintiff to agree to sell the property to the 5^th defendant at a price substantially below market value, in order to enable them (through the 5^th defendant which was used as their corporate vehicle and/or alter ego) to obtain a secret profit of at least HK$4,500,000 by immediately sub-selling the property at HK$25,000,000 to Henmax, and also earning a commission from Henmax of HK$175,000. 

III.  Defence

3.  The defendants’ case was as follows :

1)  On 10 July 2009, the 4^th defendant had found a restaurant-operator who wished to rent the property.  This was made known to the plaintiff but Mr Lei said he did not wish to let the property to a restaurant and would rather sell the property at a lower price.

2)  The 1^st and 2^nd defendants then decided to acquire the property for themselves and to let it to the restaurant-operator as tenant.

3)  On 14 July 2009, the 1^st and 2^nd defendants informed Mr Lei of their connection with the 5^th defendant.

4)  On 15 July 2009, the 4^th defendant procured the plaintiff to sell the property to the 5^th defendant.  The 5^th defendant entered into the Provisional Tenancy Agreement with the restaurant-operator to take effect on completion. The 5^th defendant marketed the property (with tenant) to the sub-buyer Henmax.

5)  On 20 July 2009, the 5^th defendant entered into an agreement to sell the property (with tenant) to Henmax for $25 million.

IV.  Fiduciary duty

4.  No issue was taken on the law.  Specifically on the principle of fiduciary duty, both parties agreed before the Judge that whether the relationship between the client and the estate agent was one of a fiduciary nature depends on the facts of each case.  The Judge referred to the ‘fair dealing rule’ discussed in Ewan McKendrick, Commercial Aspects of Trusts and Fiduciary Obligations (at pages 37-39) :

‘ Put simply (and slightly inaccurately) a person becomes a fiduciary, not because of his status, but because of what he assumes or is taken as having assumed to do in a particular relationship. To the extent, and only to the extent, that in that role the beneficiary is entitled to expect he will act in the beneficiary’s fiduciary…..

The ‘fair-dealing’ rule commonly expressed in terms which prohibit a purchase or sale by an agent even where the price is set by the principal.  As a generalisation this may be a fair representation of how the rule ordinary applies…’  [emphasis added]

V.  The dispute of the parties

5.1  Mr Lei denied that he had been told about the prospective restaurant-operator tenant.  He also did not have any objection to let the property to a restaurant-operator, he had not indicated any such objection and he had not said that he would rather sell the property at a lower price than let it to a restaurant-operator.  More importantly, he had never been told by the 1^st and 2^nd defendants that the 5^th defendant was controlled by them.  He said he would not have sold the property had he been told about the connection.

5.2  The parties had put forward completely different stories on whether the 1^st and 2^nd defendants had fully disclosed to Mr Lei that they were buying the property.  The Judge accepted the plaintiff’s evidence.

VI.  Appeal on facts

1)  The principle

6.1  This is essentially an appeal on the facts.  The well-established principle is that the appellate Court will not interfere with finding on facts by a trial judge unless the finding is plainly wrong in the sense that no reasonable judge will come to such a finding in the light of the evidence of the case.  

6.2  The defendants boldly challenged the finding of facts by the Judge.  Underpinning the defendants’ appeal is the fact that there was a long delay by the Judge in delivering the judgment.  It took 22 months for the Judge to deliver the judgment after the hearing.  At the hearing, Mr Lin focused on two other matters.  First, the Judge had made an error in relation to a date on which the restaurant licence consultant received confirmation that there was no issue of unauthorised work in the property.  Second, the Judge had erred on the burden of proof.

2)  High degree of scrutiny

6.3  Where there is a long delay in the delivery of the judgment after trial, particularly on factual matters, an appellate Court is required to consider the challenge with a higher degree of scrutiny.  This is because the advantage of a trial judge having the benefit of hearing and observing the evidence at first hand is inevitably lessened with the passage of time.  This principle is well-established and this is an approach that this Court will adopt. 

3)  Error on dates

6.4  The factual mistake that the Judge had made is contained in the following paragraph of his judgment :

‘ 73. It is interesting to note that according to Lei, Tse [2^nd defendant] informed him of the suspected unauthorised structure on 19 or 20 July 2009. On July 2009, Join Forces [5^th defendant] signed the provisional agreement to sub-sell the Property to Henmax. In that agreement, Join Forces incorporated additional terms in the annex for, among other things, prohibiting repudiation by Henmax on the ground of unauthorised structure problem. Yet according to the Consultant, he had already obtained confirmation and verifying plan from the Buildings Department that served to negate the suspected unauthorised structure problem by 17 July 2009.’

6.5  The factual error was that the confirmation only occurred on 17 September 2009 and not 17 July 2009.  Even with the higher threshold, this error on the date cannot be so material as to vitiate the Judge’s finding in this case.  This error only occurred after the Judge had addressed the theory on unauthorised structure advanced by the defendants which I will later address. 

6.6  More importantly, the Judge had considered other objective and independent evidence on how the defendants engineered the sale and sub-sale which discredited the case of the defendants.  

6.7  Mr Lin submitted that the error on dates came at the beginning of the Judge’s judgment and this must have coloured his views on the credibility of the defendants.  I disagree.  Although the Judge began his discussion first on the issue of the letting to the restaurant operator and the unauthorised work, the other evidence he had relied upon, which I will address, was objective and independent in nature.  The defendants’ theory of tainted view simply cannot get off the ground.  

4)  Burden of proof

6.8  Mr Lin then argued that the Judge had ignored the burden of proof and chose to decide the case simply by reference to the issue of credibility rather than the cogency of the evidence.  Mr Lin seeks support from the following paragraph of the judgment to advance his point :

‘ 61. The versions of events put forward by the two sides in respect of the alleged misrepresentation and non-disclosure are mutually exclusive. On the basis of the state of knowledge of the parties alleged respectively, there is no room in between, let alone plea of alternative case, such as mistake or misunderstanding. If Allied Success’ case is believed and accepted, the defendants’ case on the facts must be rejected. However if the defendants’ case is accepted, Allied Success would be accusing the defendants both falsely and knowingly. It is therefore more a question of assessment of their relative credibility of the parties than mere cogency of the evidence of Allied Success as the party bearing the burden to prove fraud.’

6.9  Mr Lin argued that allegations of fraud are very serious allegations.  The more serious the allegation the more cogent is the evidence required.  Inference of fraud may only be drawn where such inferences are compelling and it was to be plainly established as a matter of inference from proved facts.  He referred to Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387 at paragraph 182 where the Court of Final Appeal cited with approval the well-known passage of Lord Nicholls of Birkenhead in Re H & Others (Minors) (Sexual Abuse : Standard of Proof [1996] AC 563.  The Court of Final Appeal held at paragraph 184 that :

‘ …….. the Re H principle is applicable by analogy, operating not as defining a standard of proof, but imposing a standard of cogency which must be satisfied before evidence is considered sufficient to raise a case (here of forgery and of an associated conspiracy) for consideration by the court. When weighing up and assessing the probabilities in relation to the evidence adduced by the respondent as evidence of forgery, the court must bear in mind the seriousness of the misconduct alleged, recognizing that it carries an inherent degree of improbability.’

6.10  I disagree with Mr Lin’s submission.  What the Judge had said is that, because of the contradictory nature of the parties’ case, the Court had to decide which of the versions was true.  This will inevitably require an assessment of the relative credibility of the parties.  This is miles apart from showing that the Judge had ignored the fundamental principle that the party who relied on serious allegations must prove them by cogent evidence.

5)  The evidence considered by the Judge

6.11  In deciding against the defendants, the Judge did not merely consider the evidence of the three main protagonists, namely, Mr Lei, the 1^st and 2^nd defendants but also other objective and independent evidence.  He had also considered the inherent probability of the case put forward by the defendants.  Although not in the sequence as set out in his judgment, the evidence included the following :

(i)  Hiding the true identity

6.12  The elaborate way in which the 1^st and 2^nd defendants arranged the sale which rendered it difficult for an outsider to detect that the 5^th defendant was connected with the 4^th defendant.  They arranged Mr Ho who was at that time an accounting clerk of the 4^th defendant and the personal assistant of the 1^st defendant to sign the Provisional Agreement for and on behalf of the 5^th defendant as the purchaser.  Mr Ho also signed the Provisional Tenancy Agreement for the 5^th defendant as the landlord.  Mr Ho did not hold any shares, nor was he an officer of the 5^th defendant. 

6.13  Mr Ho’s evidence was that the 2^nd defendant had informed him that his personal interest in the purchase had to be kept secret or else he might be unable to purchase the property at such a favourable price.  For that reason, Mr Ho was asked to sign on behalf of the 5^th defendant. 

6.14  The 2^nd defendant’s explanation that he simply allowed Mr Ho to ‘play the boss’ in signing the agreement was clearly unbelievable and was described by the Judge as ‘near absurd’.  The Provisional Agreement was signed by Mr Ho first.  Under the signatory columns provided for the vendor and the purchaser, there were also the following printed words: ‘Name of signator(ies) and ID number(s)’.  When Mr Lei signed the Provisional Agreement for and on behalf of the plaintiff, he filled in his name and identity card number.  However, Mr Ho merely signed for and on behalf of the 5^th defendant without filling in the space for his name and identity card number. 

6.15  The 3^rd defendant was the sole shareholder and director of the 5^th defendant.  She was the 1^st defendant’s niece and her work at the 4^th defendant was her first employment upon her graduation just months ago in 2009.  There was no dispute that she was a mere nominee of the 1^st and 2^nd defendants.  However, the 1^st and 2^nd defendants chose to be silent as to why they put forward the 3^rd defendant as a nominee in this manner.

6.16  The Provisional Agreement was a tri-party agreement.  The 4^th defendant was also a party.  The 1^st defendant signed on behalf of the 4^th defendant and was entitled to receive commission from the sale notwithstanding the 1^st and 2^nd defendants’ alleged disclosure that they were buying the properties for themselves.  As stated by the Judge, the 1^st and 2^nd defendants gave different explanations as to why commission had to be paid to the 4^th defendant. 

6.17  When the 1^st defendant brought the Provisional Agreement to Mr Lei, the offer price was stated to be $19,800,000.  This price was rejected by Mr Lei who crossed it out and replaced it by the price of $20,500,000 as his counter-offer.  Mr Lei further specified in the document that the counter-offer would be open for acceptance until 2 p.m. of 15 July 2009.  If the 1^st and 2^nd defendants had already disclosed their interest to Mr Lei and were negotiating the sale face to face, it will be questionable (as the Judge had asked) why it was necessary for Mr Lei to deal with the matter this way. 

(ii)  Evidence of Ms Chan

6.18  More importantly, the Judge had also considered the evidence of Ms Chan who was also at that time an estate agent with the 4^th defendant.  She was on holiday when on 14 July 2009, the 2^nd defendant asked her to return to Hong Kong to promote the sale of the property to one of her clients.  On her return to work on 16 July 2009, the 2^nd defendant informed her that the property was just purchased by the 1^st defendant’s father originally for the purpose of earning rental income and that the 1^st defendant had secured a pre-lease of the property to a Vietnamese restaurant at the rent of $100,000 and that the 1^st defendant had obtained a bank valuation of the property at around $30 million.  He showed Ms Chan the Provisional Tenancy Agreement and a letter issued by the Standard Chartered Bank, valuing the property at $30.8 million.  He, however, did not show her the Provisional Agreement. 

6.19  The 2^nd defendant told Ms Chan to recommend the property to her client to purchase at the price of about $27 million.  He suggested the client should buy the property by way of the purchase of the shares of the 5^th defendant, as he wished to avoid letting the owner know about the huge profit that the 5^th defendant had made in such a short period of time. 

6.20  Eventually, the client agreed to purchase the property through Henmax for $25 million by acquiring the property directly instead of by way of the purchase of the shares of the 5^th defendant.

6.21  Ms Chan was then asked by the 2^nd defendant to prepare the provisional sub-sale agreement.  He told her to understate the commission payable by the 5^th defendant on the provisional sub-sale agreement to $150,000 (as opposed to the full 1% being equivalent of $250,000) so as to impress the client that it was not an easy deal and that their estate agent commission had been undercut in order to persuade the 5^th defendant to agree to sell the property to the client at that price.  The 2^nd defendant, however, assured Ms Chan that he would procure the 5^th defendant to pay her the full 1% commission on the sub-sale price as well as the bonus to her. 

6.22  Eventually, the client signed the provisional sub-sale agreement.  When the 2^nd defendant returned the signed Provisional Agreement by the 5^th defendant to Ms Chan, he told her not to release any information about this deal to any of her colleagues and asked the client not to spread the news that he had bought the property.

6.23  When Ms Chan gave the original of the provisional sub-sale agreement to Mr Ho in order for him to complete the internal records, Mr Ho told her that he had, in fact, signed the Provisional Agreement and the Provisional Tenancy Agreement and that the 1^st and 2^nd defendants had told him that the property was originally purchased by the 4^th defendant from the plaintiff for long-term investment purpose.  Mr Ho was surprised about the sub-sale and asked Ms Chan why the property was already sold to another purchaser in such a short time.  Ms Chan said she then realised that the whole series of transactions was a sham and that they had been used by the 1^st and 2^nd defendants to perpetrate a fraudulent transaction to enable them to make a profit for themselves. 

6.24  Ms Chan then confronted the 1^st and 2^nd defendants about the real owner behind the 5^th defendant.  The 2^nd defendant told her not to be so nosy and he admitted that he had some benefit in the deal.  The 1^st defendant told Ms Chan not to mind other people’s business, they would pay her share of the commission.

(iii)  Mortgage finance

6.25  The Judge also considered the point that despite the 1^st and 2^nd defendants’ alleged plan to hold the property for long-term investment, they had not made any enquiry with banks for mortgage financing. 

(iv)  Post contract event

6.26  In August/September 2009, Mr Lei heard a rumour that the 1^st and 2^nd defendants were the real purchasers of the property.  Both of them, however, categorically denied this. At about the same time, the 3^rd defendant was asked by the 2^nd defendant not to go back to work.  Although she still received her salary, she was omitted from the 4^th defendant’s staff salary list.  The Judge considered that this was another instance that the 2^nd defendant was trying to conceal the fact that the 3^rd defendant was connected with the 4^th defendant.

(v)  The plaintiff not selling to restaurant operator

6.27  As to the defendants’ case that Mr Lei was not interested to sell the property to a restaurant operator, the evidence showed that the property was used as a restaurant when the plaintiff first purchased it.  Mr Lei had testified that he held nothing against letting the property to a restaurant and he actually preferred restaurant tenants as they tended to be reluctant to terminate tenancy too easily.  His evidence was supported by the plaintiff’s property manager who was in charge of inviting estate agents to market the property.

6.28  The defendants’ case is that they had previously informed Mr Lei of a prospective tenant who would be interested in the property.  However, Mr Lei rejected the offer when he learned that the prospective tenant intended to use the property as a restaurant.  Mr Lei accepted that the 1^st defendant had mentioned a prospective tenant but there was no follow up on this matter. 

6.29  It is not in dispute that in April 2008 Mr Lei purchased a number of properties in Chung On Building including the property in question.  Before the completion of the purchase of these properties, Mr Lei managed to sub-sell all the other properties except the property in question.  The 1^st defendant had marketed the property since April 2008.  By July 2009, there was still no interested purchaser of the property.  The 1^st defendant claimed that on 10 July 2009, he found a prospective tenant who was interested to rent the property at $100,000 per month as a Vietnamese restaurant.  He referred this matter to Mr Lei.  As soon as Mr Lei heard that the tenant was a restaurant operator, he refused and told the 1^st defendant that he was not interested in letting the place to restaurant operators.  The 1^st defendant was puzzled by Mr Lei refusing to let the property to restaurant operators. 

6.30  The 1^st defendant then asked the 2^nd defendant if he had buyers who were interested to purchase the property at $20 million and then rent out the property to a restaurant operator at $100,000 per month.  The 2^nd defendant suggested that if the sale price for the property is $20 million, a $100,000 rental is a return of over 5% on the purchase price and this should attract investors.  The 2^nd defendant then considered the priority was to confirm the tenancy agreement in order to secure the return.  Since at that time, he was not sure that Mr Lei would be prepared to sell the property at $20 million, he suggested he should use a limited company to sign a provisional tenancy agreement with the restaurant operator.  After they had found the investors, the investors could then take over the company. 

6.31  The 1^st and 2^nd defendants then decided they would purchase the property themselves.  They disclosed their interests to Mr Lei and negotiated the purchase with Mr Lei.  After the Provisional Agreement with the plaintiff had been signed, they learnt Shop No. 4 next to the property was for sale in the market for $45 million.  The 1^st defendant then decided to sell the property for $25 million.  The 2^nd defendant then asked other estate agents working in the 4^th defendant to sell the property. 

6.32  The provisional sub-sale agreement with Henmax was signed on 19 July 2009.  In August 2009, the 1^st defendant learnt from the restaurant licence consultant of the tenant that there was unauthorised work in the property.  When he enquired with Mr Lei, Mr Lei denied that he knew of any unauthorised work and told him that he would forfeit their deposit if the 1^st and 2^nd defendants refused to complete the sale because of the unauthorised work. 

6.33  The 1^st defendant then realised why Mr Lei previously had refused to let the property to a restaurant operator because Mr Lei knew that application for restaurant licence would reveal the existence of the unauthorised work.  This would create a problem to the title of the property which might affect the value of the property or obstruct its sale.  This is a theory put forward by the defendants at the trial.  As it turned out, the consultant has since confirmed with the Buildings Department that there was no problem with unauthorised work and the restaurant licence was granted to the tenant.

6.34  It is plain from the above narration of the 1^st defendant’s evidence that he was using the purported rejection by Mr Lei to let to restaurant operators to explain why he and the 2^nd defendant secured the Provisional Tenancy Agreement between the tenant and themselves. 

6.35  The Judge rejected the theory put forward by the defendants that Mr Lei refused to let to restaurant operators because of his knowledge of the existence of unauthorised work in the property.  The Judge held that the problem associated with unauthorised work would not be addressed even if the property was not let to restaurant operators.  It would remain as a potential title problem.  As a seasoned investor, Mr Lei must be taken to have realised that.  This concern could have been addressed by incorporating appropriate terms in the contract for sale.  The Judge held that the lack of specific terms in the Provisional Agreement by the plaintiff tended to suggest otherwise. 

6)  Decision of any reasonable judge

6.36  In my view the defendants had simply failed to demonstrate that with this evidence, no reasonable judge would have been able to find against the defendants as the Judge had done in the present case.

7)  Other complaints

6.37  Mr Lin also relied on matters set out in his written submission on which he said the Judge was in error.

6.38  I do not need to address these matters.  As correctly pointed out by Mr Douglas Lam SC and Ms Ebony Ling for the plaintiff, many of these matters are concerned with the Judge’s weighing of the evidence.  They are not matters that would have been affected by any fading of recollection of the Judge. These matters do not come close to showing that the Judge was plainly wrong on the finding of facts which would justify interference by this Court.

VII.  Conclusion

7.  Accordingly, the appeal was dismissed.

Hon Yuen JA:

8.  I agree with the reasons for judgment of Cheung JA.

Hon Kwan JA:

9.  I agree with the Reasons for Judgment of Cheung JA.