GROUP SENSE COMMUNICATION LTD. AND OTHERSv. CHARLIE Y.W. CHIU AND ANOTHER

1994, No.HCA8068

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.8068 OF 1994

---------------

---------------

____________________

J U D G M E N T

____________________

1. This case involves a joint venture attempt to establish a telephone paging system in seven cities in Burma, now known as Myanmar; or, to be more precise, it involves the use of monies designated to be utilised in such an attempt. The essential facts of the case are in short compass. In outline, the story is as follows.

2. Thomas Tam is an entrepreneur in Hong Kong. Together with his brother, Samson, he runs the Group Sense Group of Companies, of which the 1st and 2nd Plaintiffs herein form part. In 1993, Mr Thomas Tam was introduced to the 1st Defendant, Mr Charlie Chiu. Mr Chiu ran the 2nd Defendant, a Hong Kong company which dealt, inter alia, with the export of goods to Myanmar. More particularly, however - and here lay the point of interest for Mr Tam - Mr Chiu and his family apparently maintained considerable reputation and business influence in Myanmar, and as a consequence, Mr Chiu constituted a valuable contact and conduit for any commercial venture within Myanmar.

3. And so it came to pass that in April 1993, Mr Tam and Mr Chiu, together with a Mr Tony Chiu (who had brought them together) and a Mr Tse Ngok Yat, both of another Hong Kong company, Enken International Limited, sat down to dinner to discuss establishing a telephone paging business in Myanmar with a 25 year exclusive right of operation. Mr Charlie Chiu's extensive reputation and business influence in Myanmar made him the perfect partner in any such venture; he, apparently, was the passport to power and influence in that country.

4. After that initial meeting, a further dinner was held in Hong Kong on 12th May 1993, at which Mr Chiu introduced to Mr Thomas Tam and his colleagues several persons alleged to be influential within the Communications Department of the Myanmar Government; once again, I understand, the paging project was generally discussed.

5. In turn, this dinner was followed by a trip to Myanmar itself, in order that Mr Thomas Tam and his brother could ascertain for themselves the business situation in Myanmar and also, and more particularly, to provide the opportunity to verify the reputation and influence of Mr Charlie Chiu, whose family was said to have extensive business interests there, including lucrative Duty Free concessions. I understand, from the evidence, that whilst in Myanmar Mr Tam spent a good deal of time apart from Mr Chiu, who I am told was off pursuing his own business interests, but in any event, a focal point of this visit was a dinner on 23rd May 1993, again attended by senior Myanmar officials, and where again the anticipated project was generally discussed. I note in passing here that I accept Mr Tam's evidence that this dinner was preliminary only, and that there was no question of any agreement, on any issue, being entered at this stage.

6. Be that as it may. What is common ground between the parties is that on the return to Hong Kong from that trip to Myanmar, further discussions about the paging business took place during the last part of May and in early June 1993, and that it was clear that a not insubstantial capital sum would be required to substantiate and underpin Mr Chiu's efforts to obtain the desired 25 year exclusive right - absent such exclusivity, said Mr Tam, and I accept, such a right was far less valuable. I further accept that Mr Tam was prepared to put up the money required, a sum of US$250,000.00, if the 1st Defendant could reassure him that this sum would be returned if the paging business, and in particular the 25 year exclusivity, did not eventuate.

7. On 11th June 1993 a document was signed, entitled "A Proposal of Joint Venture in Myanmar", to which the parties were the 1st Plaintiff, the 2nd Defendant and the aforesaid Enken International Limited. The idea was to set up a BVI Company, which transpired was the 3rd Plaintiff, which was shortly thereafter established in July and which would be the majority shareholder on an 80:20 basis in a joint venture in Myanmar with the Communication Department of the Government of Myanmar. This document in particular has assumed considerable prominence in this action - indeed, it is but one of the few that did assume any prominence amongst the very considerable accumulation of paper prepared for this trial - and in particular Clauses IIIA and D are important; for convenience of reference, I set these clauses out in full :-

"III. Issues

A. GSC [1st Plaintiff] will lend the Company [3rd Plaintiff] an initial set up cost of US$250,000 before 15th June, 1993. The Company has authorized Mr. Chiu to set up the telecommunication services in Myanmar. Mr. Chiu guarantees if he fails to set up the telecommunications services in Myanmar six months after 15th, June, 1993, he shall refund the initial set up cost to the Company. (emphasis added)

...

D. Mr. Chiu has to negotiate with the Communication Dept. that :

(a) At least, the Company has the right to choose seven cities in Myanmar to set up the telecommunication services. In each city, the Company is entitled for thirty (30) telephone lines and one (1) telecommunication channel;

(b) The Company has an exclusive right for twenty-five (25) years for the set up of the telecommunication services (i) and selling of pagers (ii) in Myanmar; and

(c) To ensure the Communication Dept. can apply to the related authorities in Myanmar for the Joint Venture to export the raw materials/products in Myanmar overseas such as wood.

(d) The formation of the Joint Venture in Myanmar."

8. This document was signed by Thomas Tam, Charlie Chiu and Tse Ngok Yat, and I will advert later in this judgment to the arguments put forward with regard thereto.

9. But to continue with the story. On the same date, namely 11th June 1993, the 2nd Plaintiff herein, on behalf of the 1st Plaintiff, paid to the 2nd Defendant a cheque in the amount of HK$1,932,112.50 (which was the equivalent of US$250,000 at the then prevailing exchange rate). As to the issue of actual payment, the evidence, which I accept, was that Mr Chiu had asked for a cash cheque but that Mr Tam had refused; his was a listed company and in the circumstances this course was considered inappropriate. So in the event the 2nd Plaintiff, the parent of the 1st Plaintiff, supplied the funds in the form of a cheque made payable to the 2nd Defendant, Mr Chiu's company.

10. What happened thereafter is distinctly murky. According to Mr Chiu, the money found its way into Myanmar other than via the usual means of transmission between banks. More surprisingly, it was Mr Chiu's own evidence that shortly after he had been given the equivalent of US$250,000, he, Mr Chiu, had handed it over in its entirety to an entity by the name of Hi Sun Company Limited, through whose agency, he said, it had been agreed with Mr Tam would be done all that was necessary in terms of preparatory work to obtain the exclusive 25 year paging licence. Even more surprising, against this background, was Mr Thomas Tam's forceful denial that until this litigation had commenced and he had visited his solicitor, he had never even heard of the name of Hi Sun Company Limited, much less authorized the spending of all the seed capital for the paging project by that company. I accept this evidence without question - given Mr Charlie Chiu's central position in the scheme of things, it is inconceivable to my mind that Mr Tam would have agreed, as Mr Chiu alleged, to his immediately handing over this significant sum of money to a third party Burmese company which was not in the communication business and with which Mr Chiu himself, upon his own evidence, had no commercial connection.

11. Be that as it may. So far as the spending of this money was concerned, Mr Charlie Chiu produced invoices from various Burmese entities which he said had been instructed by the aforesaid Hi Sun to do necessary preparatory work; the total amount of these invoices was very significantly in excess of the initial figure of US$250,000. Let me say at this stage that I view the provenance of such invoices, which purported to have been sent to the 2nd Defendant in the period between September to December 1993, with the deepest suspicion. Moreover, why they were sent to the 2nd Defendant, and why Hi Sun had not paid them, in part at least, is unclear, if indeed all the cash had been handed to Hi Sun at the outset; nor for that matter do I have any idea why it was thought necessary in the circumstances to counterclaim for "reimbursement of expenses to Hi Sun Company Limited" in the precise equivalent of US$250,000 when apparently Hi Sun had been given these monies in the first place.

12. But I digress. In October 1993 Charlie Chiu orally informed Mr Thomas Tam that the Myanmar Government had asked for a 30% share of the profits of the paging business and a signing bonus of US$300,000. Perhaps unsurprisingly, Mr Thomas Tam refused this counterproposal. In the event, I accept Mr Tam's evidence that upon the failure of the joint venture to obtain the paging licence that the 1st Defendant, Mr Charlie Chiu, had assured him that the monies would be refunded in their entirety, as indeed had been agreed, and as soon as possible; indeed, the sequence of correspondence which took place after the expiry of the six month period (which had been specified in Clause IIIA of the Proposal) speaks volumes for the true situation. In this regard, I am bound to observe that Mr Chiu cut a sad figure in the witness box when he attempted to explain and rationalise what he meant by the letters he had undoubtedly been writing about such refund from early March 1994 onwards. I have no doubt whatever that Mr Chiu had promised (and possibly intended) to make full payment of the principal sum, albeit in instalments, and that by means of this correspondence, which on his part eventually dried up by April 1994, he was merely seeking to defer the evil day, so to speak. In the event, no repayment was made, and the present proceedings were issued in August 1994. They have now finally got to trial, notwithstanding two adjournments at the Defendants' behest, in September 1997 and March 1998 respectively, which in the present circumstances I am driven to conclude were yet a further attempt to defer the final reckoning.

13. The Plaintiffs' case is and was straightforward. What is sought, no more, no less, is the repayment of the US$250,000 (or, as has been expressed in the Statement of Claim, HK$1,932,112.50) together with interests and costs. Mr Thomas Tam and Mr Tony Chiu gave evidence. The main thrust of which was that upon the failure of the pager enterprise, there was no doubt that the money was to come back in its entirety. Mr Chiu had promised this, both orally and in documentary form, and he had reneged. Minor discrepancies aside, such as a failure to recall persons met and places visited in Burma, their evidence was impressive and straightforward. I accept it in all material particulars.

14. I regret that I cannot say the same for Mr Charlie Chiu. His smiling demeanour, charm and obvious linguistic ability concealed, in my view, an utter disregard for the truth. I reject his evidence as a synthesis of falsehoods and misleading half truths, and I reject it in all material aspects. Indeed, I am driven to comment that I am not entirely sure what the defence is or was in this case; moreover, after queries from the Bench, the counterclaim was abandoned in its entirety by Mr Tsang at the outset of the defence case.

15. Indeed, such defences as appeared to be put forward, involving variously the authority of Hi Sun to dissipate the sum of US$250,000 expenses, the failure of Mr Tam to accommodate the Burmese Government demands - so that it was, effectively, the Plaintiff's fault that the paging licence could not be obtained - and an allegation, but faintly pursued, that the Plaintiff's had reneged on a promise they themselves had made to the Myanmar authorities to provide underground telephone cable, all amounted, in my view, to risible attempts to deflect from the point at issue. Nor in this connection could I see any merit in the diverse implied terms that were pleaded in the Defence - as I made clear early in the case, I was not minded to imply any such terms into the agreement between the parties, since in this regard I could see no proper legal basis so to do, and none was suggested. In short, I have been able to discern no substantial defence on the repayment issue, and it is perhaps cause for regret that in effect the Defendants have been permitted to manipulate the system in order to defer the day of judgment.

16. My views as to the intrinsic lack of merit in the Defendants' case were perhaps accentuated by the fact that Mr Tsang, for the defence, made but one point only in his final address, namely, that if there was liability to the Plaintiffs (and he was of the view, and so submitted, that on the facts the 1st Plaintiff was the correct Plaintiff), then such liability would only be that of the 2nd Defendant, the 1st Defendant's company, and not that of Mr Charlie Chiu himself. For this argument, Mr Tsang relied upon the construction of the Proposal of 11th June 1993, asserting that all parties thereto had impliedly signed for and on behalf of their respective companies; and be further submitted that in the circumstances there could not be joint liability on the part of both the 1st and the 2nd Defendants.

17. The response of Mr Lam, for the Plaintiffs, was as follows. He too took the view that, on the evidence, the 1st Plaintiff was probably the correct Plaintiff - all three Plaintiffs had been joined out of an abundance of caution - but in his submission he was entitled to ask for judgment, and so did, against both the 1st and 2nd Defendants.

18. So far as the 1st Defendant was concerned, said Mr Lam, Charlie Chiu personally was clearly and obviously an integral part of the agreement; indeed the Plaintiffs' case, as pleaded, was that the Proposal dated 11th June 1993 was part of an agreement partly in writing and partly oral, and there was no doubt that Charlie Chiu was a crucial figure therein - without him and his influence, the possibility of the 25 year licence simply would not have arisen. Moreover, the very terms of the Proposal accentuated Charlie Chi's personal status and responsibilities, whilst in his evidence in cross-examination Mr Chiu had specifically accepted that the sentence in Clause IIIA of the Proposal that "he shall refund the initial set up cost to the company" did indeed reflect the agreement between the parties at that time, and he had also expressly accepted that Clause D of the Proposal listed out his personal duties in setting up the paging service in Myanmar. In fact, Mr Chiu's cross-examination effectively concluded with the following question and answer :

"Q : So if you personally fail, you would repay the $250,000?

A : If I failed in any of these three terms, then I was liable."

19. So with regard to Mr Charlie Chiu's liability, I am minded to accept Mr Lam's arguments. In my view, on the evidence and on the facts established, Mr Chiu always had a primary liability to repay this sum of money and did not simply act as a guarantor, notwithstanding the use of that word in Clause IIIA of the Proposal.

20. However, I think that Mr Lam is on less firm ground with the 2nd Defendant, Mr Chiu's company, notwithstanding Mr Tsang's attempts to steer me firmly in that direction. Mr Lam's argument that, by virtue of the payment to the 2nd Defendant, there was "an implied promise to repay" does not, I think, bear analytical scrutiny, and given that I find that the agreement as to the repayment of the money was not, as the Plaintiffs say, solely contained within the Proposal of 11th June, I think that any force there may have been within Mr Tsang's argument as to Mr Chiu signing on behalf of the 2nd Defendant only is dissipated; indeed in this latter context I can see no good reason why in any event Mr Chiu could not have signed the document both in his personal and in his representative capacity.

21. But be that as it may. I am perfectly satisfied, upon a review of all the evidence, that the justice of this case is that the repayment liability was and is that of Mr Chiu, and that his company, the 2nd Defendant, was used in the circumstances solely as a conduit for a payment which, had Mr Chiu had had his way, would have been made in cash without the need for any participation on the part of the 2nd Defendant.

22. The result of the foregoing judgment, therefore, is as follows :-

There will be judgment for the 1st Plaintiff against the 1st Defendant in the sum of HK$1,932,112.50, together with interest thereon at the rate of 8% from the date of the issue of the writ herein to the date of judgment, namely today's date, and thereafter interest on such judgment sum at the judgment rate from time to time prevailing until payment.

The Plaintiffs' claim against the 2nd Defendant is dismissed, as is the Defendants' counterclaim.

23. I will now hear Counsel upon the issue of costs and upon any other matter arising.

[Submissions from Counsel]

24. I have now had the opportunity of hearing Counsel upon the issue of costs. After hearing argument and after considering the matter, my order is as follows:-

1. The 1st Plaintiff is to have its costs of the action against the 1st Defendant, to be taxed and paid upon an indemnity basis, if not agreed;

2. Save as aforesaid, there be no order as to costs.