CHINA FINANCE & ASSETS MANAGEMENT LTD v. LAFE PROPERTIES (HONG KONG) LTD

HCA 526/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 526 OF 2010

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(By Counterclaim)

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J U D G M E N T

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CONTENTS

I.  INTRODUCTION (§1)

II.  FACTUAL BACKGROUND (§3)

III.  The Parties’ Cases and the Main Issues raised (§72)

IV.  The Defences

A.  Identity of the payee of the cheque

  (1)  The issue (§76)

  (2)  The parties’ cases (§87)

  (3)  Discussion (§91)

  (4)  Conclusion (§99)

B.  Whether delivery of the cheque conditional

  (1)  The defence (§101)

  (2)  Collateral agreement – admissibility (§103)

  (3)  Collateral agreement – the alleged oral agreements (§121)

  (4)  Construction of the Agreement and Supplemental Agreement (§146)

  (5)  Implied term (§159)

C.  The Money Lenders Ordinance defence (§161)

D.  The defence of unconscionable bargain (§166)

V.  The Counterclaims (§170)

VI.  Conclusions (§174)

I.  INTRODUCTION

1. This is an action on a dishonoured cheque for the sum of HK$25 million.  In short, the plaintiff’s case is that it entered into an agreement with the defendant, whereby the plaintiff agreed to arrange a loan of HK$300 million to be advanced by third parties to the defendant.  The cheque for HK$25 million was for payment of the first tranche of the service fee due to the plaintiff under the agreement.

2. The defendant has raised a number of defences including the pleas that the plaintiff is not the payee of the cheque, that there was a collateral agreement that the cheque was not to be presented until certain events, that the cheque was tainted by illegality under the Money Lenders Ordinance (Cap. 163) and that the underlying agreement requiring payment of service fee was unconscionable.  The defendant has further counterclaimed against the plaintiff and two additional defendants by counterclaim, raising claims for conspiracy and breach of warranty of authority.  To understand these pleas, it is necessary to set out the relevant facts. 

II.  FACTUAL BACKGROUND

3. In this section I shall set out chronologically the relevant facts and events, indicating at the appropriate juncture the matters in dispute.

China Finance

4. The plaintiff, China Finance & Assets Management Limited, is a company incorporated in Hong Kong with the company number of 1316714 that carried on business in corporate finance, financial advisory service and wealth management.  The holding company of the plaintiff is a company incorporated in Samoa with exactly the same name and a company number there of 4650, and carried on business in the same areas.  The existence of two related companies with the same name has given rise to a dispute in this action about the true identity of the payee of the cheque.  I shall refer below to the plaintiff’s side generally as “China Finance”.  Where it is necessary to distinguish between them, I shall refer to the plaintiff as “China Finance HK” and to its Samoan holding company as “China Finance Samoa”.

Lafe

5. The defendant, Lafe Properties (HK) Limited, was at the material times a member of a group of companies headed by Lafe Corporation Limited, a company whose shares were listed in the Singapore Stock Exchange. Another member of the group was Guangzhou Lafe Electronic Components Co Ltd.  I shall refer below to the defendant as “Lafe HK”, to the Guangzhou sister company as “Lafe GZ” and generally to their camp as “Lafe”. 

Initial contact

6. The cheque that is the subject of these proceedings arose out of an agreement dated 15 March 2010 and a supplemental agreement dated 17 March 2010 between Lafe HK and China Finance for services to be provided by China Finance to assist Lafe HK in obtaining a loan.  There were however preceding communications and agreements which form part of the background. 

7. At the time in 2009, Lafe HK owned various units in The Grande Building at 398 Kwun Tong Road, Kowloon, which were mortgaged to Bank of East Asia.  Lafe GZ owned a piece of industrial land in Guangzhou, Panyu District (“the Panyu land”), which was mortgaged to Guangzhou Rural Commercial Bank, a Mainland Chinese bank.

8. The Lafe group intended to redevelop the Panyu land for commercial and residential use.  A substantial amount of money, to the tune of over RMB 1 billion, was potentially required for that project.  Tony Lam, Executive Director of the Corporate Finance and Development Department of another group of companies called the Grande group (headed by The Grande Holdings Limited), was instructed by the management of the Lafe group to source financing for that purpose.  At that time, the Grande group and the Lafe group were related to each other in that they shared a common major shareholder and chairman of the boards of directors, namely, Mr Christopher Ho.  Part of the funding to be raised was needed for repaying the loan to Guangzhou Rural Commercial Bank in the amount of approximately RMB 110 million which was repayable on around 20 March 2010.

9. In July 2009, a person called Carlos Chan (the 1^st defendant by counterclaim) was introduced to Tony Lam as someone who could help the Lafe group to source funds.  Carlos Chan described himself to the court as a middleman, and he appears to have acted on his own account in trying to source funds for Lafe from Mainland banks or institutions in 2009, but he also held himself out to Tony Lam as a “Senior Vice President” of China Finance and gave Tony Lam a name card with that title.  It seems to me clear from the evidence that by March 2010, he was acting for China Finance in the context of the transaction in question.

10. In January 2010, Carlos Chan introduced certain Mainland banks and funds to Tony Lam as potential lenders of a loan of RMB 300 million to Lafe GZ.  Negotiations became fairly advanced by late February 2010.  On 1 March, Tony Lam sent the Lafe group’s summary accounts to Carlos Chan as requested, for the purpose of a corporate guarantee to be given (presumably by other companies in the Lafe group).

First pair of mandate agreements

11. At the same time, China Finance and Lafe began to formalise the engagement of the former as the agent for procuring loans.  In early March 2010, China Finance provided a form of mandate agreement called “Commissioned Financing Consultation Agreement” with China Finance (with its company number stated as 4650) to Tony Lam.  It was an agreement for engaging China Finance to source loans in the total sum of HK$340 million for Lafe GZ for the term of one year.  The service fee inclusive of interest for one year was stated to be 30% of the aggregate loan amount.  It was provided in the annex that the first tranche of the loan would comprise (i) RMB 111 million for repaying Guangzhou Rural Commercial Bank and (ii) the service fee, and that after the property was mortgaged to the lenders, if the balance of the loan was not advanced, a pro-rated portion of the service fee would be returned by China Finance to Lafe GZ.  After making some amendments, Paul Law signed the agreement on behalf of Lafe GZ and had it sent to Carlos Chan on 3 March. 

12. Documentary evidence shows, and it is not in dispute, that also on 3 March, Paul Law’s subordinate staff obtained certain information of China Finance registered with the Hong Kong Companies Registry and found that it was a company incorporated in Hong Kong in April 2009 and that it had a director with exactly the same name but with a registered or principal address in Samoa.

13. The plaintiff says that, at this point, Tony Lam asked Carlos Chan whether China Finance, the counterparty to the agreement, was the Hong Kong company or the Samoa company, and that Carlos Chan, after speaking to Simon Choi, confirmed to Tony Lam that it was the Hong Kong company.  This is disputed by the defendant and forms one of the crucial issues of fact which I shall resolve below, in the context of the identity of the payee of the cheque.

14. Upon receiving the agreement signed by Paul Law, Carlos Chan wrote to Tony Lam that the lenders could not bear the risk of lending without collateral, that a second mortgage on the Grande Building properties was essential and that there had to be an agreement signed by the owner of the property in that building.

15. Tony Lam replied on the same day to Carlos Chan stating, inter alia, that the Lafe group undertook to complete a second mortgage on the Hong Kong properties within 3 to 6 months after completion of the loan of HK$340 million to Lafe GZ. 

16. It appears that following further telephone communication, it was agreed that Lafe HK – the company that owned units in the Grande Building – would sign a mandate agreement.  Accordingly, on around 4 March, Mrs Eleanor Chan Crosthwaite, a director of Lafe HK, also signed a form of “Commissioned Financing Consultation Agreement” on behalf of Lafe HK.  On this mandate agreement, the commissioning party was Lafe HK and its address was inserted; the company number of China Finance continued to be stated as 4650. The loan remained HK$340 million, to be lent to Lafe GZ; the security remained the Panyu land; and the service fee (inclusive of one year’s interest) remained 30% of the aggregate loan amount.  Tony Lam returned the signed copy by email to Carlos Chan, reiterating that the Lafe group undertook to complete the second mortgage on the Hong Kong properties within 3 to 6 months after completion of the loan of HK$340 million to Lafe GZ, giving the reason that it would take time for the mortgagee bank to obtain internal approval and consent to the second mortgage.  Tony Lam also sent Carlos Chan a written resolution of the directors of Lafe HK, which stated that Lafe HK authorised China Finance to arrange a loan up to HK$340 million to Lafe GZ and that the directors were authorised to sign the mandate agreement with China Finance.

Second pair of mandate agreements

17. On around 5 March, two revised mandate agreements with China Finance were signed by Lafe GZ and Lafe HK respectively.  The front page and the execution page of both agreements specified the company number of China Finance as 4650.  Compared to the first pair of mandate agreements, the only material change is that the service fee as stated was reduced by 5% to 25%.  It appears, however, that there was an understanding between the parties that the 5% would be paid to another company to the order of China Finance.

18. The mandate agreement for Lafe GZ was signed by Paul Law while he was in the Mainland, while the mandate agreement for Lafe HK was signed by Mrs Crosthwaite at the offices of the solicitors firm retained by China Finance, namely, Wat & Co.  It appears that Simon Choi signed it subsequently on 6 March.

Supplemental agreement dated 9 March 2010

19. For his part, Tony Lam was getting quite anxious to finalise the loan.  On 6 March, he chased Carlos Chan for the draft loan agreement for review by the Lafe group.  After speaking to Carlos Chan, Tony Lam reported to management that the loan offer had been approved and the funds for the loan were ready and that the loan agreement and payment instruction were being drafted by China Finance’s lawyers.  He also reported a piece of “surprising information” that Lafe would be “required to sign the payment instruction to the funds before signature on the final loan agreement”.  Tony Lam himself had questions about this requirement but he advised management to wait for the documentation to arrive.

20. On 8 March, Carlos Chan wrote an email to Tony Lam stating that the loan would be drawn down in two tranches.  The first tranche would be lent to Lafe HK and in the range of HK$280 million to HK$320 million.  The second tranche would be lent to Lafe GZ and in the amount, at the minimum, of RMB 100 million.  Carlos Chan added:

“As stated in the Mandate, all term and conditions are unchanged and prepayment of arranger fee (by cheque only) is required in this loan arrangement. Attached is a supplementary agreement in this regards, please arrange the execution if you have no further query.” [sic]

21. Tony Lam then wrote to Carlos Chan stating his understanding, inter alia, that:

“HKD 25M cheque to be issued by Lafe Properties (HK) Ltd and passed to your lawyer upto signing of the additional agreement …” [sic]

22. A little later, after speaking on the telephone with Carlos Chan, Tony Lam wrote him another email at 1:04 pm to ask him to confirm, inter alia, that:

“As discussed, the fees will be settled via the cheques clearing upon the date of loan proceed being received by Lafe Properties (HK) Ltd.

Please confirm that your company / your lawyer will not clearing the cheque before the date of drawdown.  As per the mandate agreement, cheques will be served for custodian and held with the lawyer only.” [sic]

23. Carlos Chan was travelling and could not respond to this email.  However, Tony Lam managed to speak to him near midnight that day.  On the morning of 9 March, Tony Lam sent an email to Carlos Chan asking for his confirmation:

“- pls advise and confirm our understanding on your company’s offer and drawdown processing

…

Referring to your telephone advice to our Mr Law and me that the custodian cheques being issued and held with your lawyer are documentation requirement.  Your company will only clear the cheques on the date of loan drawdown by Lafe Properties (HK) Ltd.” [sic]

24. Carlos Chan replied very soon, confirming that the “content in your email is correct”.

25. During lunch time on 9 March, Carlos Chan sent a revised draft supplemental agreement to Tony Lam.  Tony Lam reported to management, noting that clause 2 of the draft mentioned that the cheques for the fees and charges in the sum of 25% of the total loan amount would be cleared when Lafe HK received the first drawing of the loan proceeds.

26. Later in the afternoon, Mrs Crosthwaite went to the office of Wat & Co and signed two documents, namely:

(1)  a supplemental agreement on behalf of Lafe HK (“9 March 2010 supplemental agreement”), in materially identical terms to the revised draft referred to in paragraph 25 above, which provided as follows:

“(1) Both parties agree to split the Service Fees into two installments, and respectively to be received by Party B’s designated unit: the first instalment HK$25,000,000 [payable by Lafe Properties (Hong Kong) Limited’s company cheque], shall be payable at the time Party A and Party B sign the Supplementary Commissioned Financing Consultation Agreement; the balance of the Service Fees shall be payable at the time Party A and the Loan-providing Institution sign the formal loan agreement, Party A shall pay Party B by Lafe Properties (Hong Kong) Limited’s company cheque.

(2) The second instalment of Service Fees shall be the balance of 25% of Party A’s total loan amount minus the first instalment of HK$25,000,000 and the annual interest and handling charge under the Formal Loan Agreement. The first instalment of HK$25,000,000 and the second instalment of Service Fees shall be deposited when Lafe Properties (Hong Kong) Limited and the Loan-providing Institution sign the formal loan agreement, and when Party A obtains the first loan amount. If the cheque fails to be honoured, it will be treated as breach of contract; Party B shall immediately stop all its loan-related work, and Party A shall pay damages to Party B in accordance to the terms under the Commissioned Financing Consultation Agreement.

(3) If the relevant loan financing fails, the above-mentioned Service Fees shall be returned by Party B unconditionally; unless specially stated in this agreement, all terms and conditions in the Principal Agreement still have legal force.” (underlining added)

(2) a joint letter by Lafe HK and China Finance to Wat & Co (“9 March 2010 joint letter”) confirming the following:

“1. Your firm is only responsible for attesting the signing of the Supplementary Agreement; your firm is not required to provide legal advice on the contents therein.

2. We did not provide the Commissioned Financing Consultation Agreement (“Principal Agreement”) signed on 6^th March 2010 to your firm, so your firm is not required to provide legal advice on the contents therein.

3. The Principal Agreement and Supplementary Agreement are drafted by us and your firm has no legal liability.

4.  The payment and receipt of Service Fees under the Principal Agreement and Supplementary Agreement shall be arranged by ourselves; your firm does not have any connection with it.”

27. At the same time, Mrs Crosthwaite handed over to Erik Lo of Wat & Co a cheque drawn by Christopher Ho on behalf of Lafe HK in favour of China Finance in the sum of HK$25 million. 

Third pair of mandate agreements

28. It is common ground that China Finance subsequently found, upon reviewing the documents, that there were inaccuracies in the second mandate agreement of Lafe HK dated 6 March 2010 in that, inter alia, the property offered as security was stated as the Panyu land rather than the Grande Building properties.  Carlos Chan notified Tony Lam of the problem by email on 11 March.  On the same date, China Finance returned the cheque for HK$25 million to Lafe HK under cover of a letter which pointed out the description of the property offered as security was discrepant.

29. An amended agreement had therefore to be drawn up.  At around midnight that day, Tony Lam reported to management that the draft revised mandate agreement would be available for signing the next day (ie 12 March) and that Lafe HK should issue a new cheque to China Finance dated 12 March.

30. For reasons that are not clear, the revised mandate agreement was not signed on 12 March.  There is a curious absence of emails between 12 and 15 March, even though it appears likely that the parties continued to communicate with each other.  Instead, Wat & Co sent two draft mandate agreements to Tony Lam at 12:19 pm on 15 March, namely:

(1)  a mandate agreement to be signed by Lafe HK engaging China Finance to arrange loans totalling HK$300 million to be lent to Lafe HK on the security of 9/F Grande Building; and

(2)  a mandate agreement to be signed by Lafe GZ engaging China Finance to arrange loans totalling HK$200 million to be lent to Lafe GZ on the security of the Panyu land.

The front page and execution page of both agreements stated the company number of China Finance to be 4650. 

31. At 1:39 pm on 15 March, Tony Lam wrote to Erik Lo of Wat & Co, stating that Lafe had confirmed and understood from China Finance as follows and attaching a copy of the 9 March 2010 supplemental agreement:

“The payment condition of professional fee from Lafe Properties (Hong Kong) Limited to China Finance should be no changed:-

- HKD25M to be settled by cheque and delivered to your office upto signing on the agreement between Lafe Properties (HK) and China Finance today

- Second tranche of settlement of Professional Fee to be executed by cheque for net amount (i.e. 25% on the loan proceed after deduction of HKD25M and interest & handling fee showing on the loan agreement from the finance institution/bank) upto signing of the loan agreement between the finance institution and Lafe Properties (HK) Limited.

- All the wording will be same the previous one that we have signed with China Finance on Mar 9 at your office (content of which is attached again for your easy reference)

…

Lastly, we will be appreciated if you could confirm with the management of China Finance as per our understanding on the captioned issues.” [sic]

32. It appears that Erik Lo intended to forward this email to Simon Choi or Carlos Chan to discuss with them, but he mistakenly forwarded it back to Tony Lam. 

33. Later on 15 March, Paul Law and Mrs Crosthwaite (together with Tony Lam) went to Wat & Co where Paul Law signed the mandate agreement for Lafe GZ and Mrs Crosthwaite signed the mandate agreement for Lafe HK. Simon Choi signed both documents on behalf of China Finance although it appears he did so at a different time. 

34. According to Paul Law, on that occasion, he asked Erik Lo whether the other party to the agreement was a Hong Kong or overseas company (it is not clear whether he was referring to the agreement with Lafe GZ or Lafe HK).  Erik Lo replied that it was an overseas company. This evidence which is disputed by the plaintiff is relevant to the question of the identity of the payee of the cheque and will be discussed below in that context.

35. The mandate agreement signed for Lafe HK on 15 March 2010 is the governing agreement in this action and I shall refer below to it as “the Agreement”.  It provided as follows:

“Clause One Principle of this Agreement:

Party A [Lafe HK] commissions Party B [China Finance] to be fully responsible for introducing financial institutions or banks (hereinafter “Loan-providing Institution”) inside and outside of China or other overseas jurisdictions to apply for a loan, and Party A’s property located at 9/F, The Grande Building, 398-402 Kwun Tong Road, Kwun Tong, Kowloon, HK shall be used as security for the loan.

……

Clause Two Total Negotiated Loan Amount:

Party B shall introduce Loan-providing Institution for Party A to apply for a loan. The loan target is HK$300 million, the final loan amount shall be set by the contents of the loan agreement.

Clause Three Annual Interest Rate of the Loan:

The final annual interest rate shall be determined by the loan agreement, the term shall be one year, relevant miscellaneous charges including deposit tax, handling charges, lawyers fees shall be paid by Party A.

Clause Four Party B’s Fees Standard and Format:

A. Party B’s fees shall be twenty five percent [25%] of Party A’s total loan amount. Including but not limited to administration fees for business consultation, introduction fees and service fees (hereinafter known as “Service Fees”).

B. Since in this commission, Party B has provided professional services including important consultation and negotiation strategy, etc., to enable Party A to obtain loan from the Loan-providing Institution arranged by Party B, the payment method shall be of the following two types: (1) Upon signing of commissioned agreement with Party B, Party A shall also sign an instruction to the Loan-providing Institution to instruct the Loan-providing Institution to transfer the Service Fees to Party B at the same time the loan is transferred to Party A. Payment method: (2) Before signing the Formal Loan Agreement with the Loan-providing Institution, Party A must deposit the full amount of the Service Fees (50% shall be paid by cash, the remaining 50% shall be paid by cheque, this cheque must be deposited when Party A obtains the loan) into the Hong Kong law firm (the law firm must be agreed by Party B), the law firm shall pay the Service Fees in full amount to Party B when Party A receives the loan. (The aforementioned two payment methods shall be finally determined by Party B and the Loan-providing Institution.)

C. If Party A demands to receive the loan by instalment, the full amount of Service Fees shall be paid to Party B on the day Party A receives the first instalment of the loan, no cost incidental to Party A’s request for receiving the loan by instalments shall be deducted from the Service Fees received by Party B, when the Loan-providing Institution is prepared to sign the Formal Loan Agreement, Party A for any reason fails to sign the formal loan agreement, Party A shall pay Party B 1% of the total loan amount as administrative fees.

……

Dispute Resolution Method:

……

4.  After Party B has supplied its services or information, if Party A, its subsidiary or related units arranged a loan transaction privately with the Loan-providing Institution (introduced by Party B), Party B shall be deemed to have completed its duties under this agreement. Apart from paying the full Service Fees to Party B, Party A shall pay an extra of 2% of the total loan amount as damages for breach of contract.”

Supplemental agreement dated 17 March 2010

36. A further agreement supplemental to the Agreement was then prepared by Erik Lo of Wat & Co, to deal with the manner of payment of China Finance’s service fees.  A draft was sent to Tony Lam at about 6 pm on 16 March.  Apart from this there was again a curious absence of email communication between the Agreement and this supplemental agreement.

37. The plaintiff says that this draft was sent following communications among Tony Lam, Carlos Chan and Simon Choi on 15 March in which they discussed and agreed a change of the payment terms to payment of the first tranche of the service fee “upfront”.  In contrast, the defendant denies there was any such discussion, and avers that after receiving the draft supplemental agreement, Tony Lam spoke to Carlos Chan on 16 March who confirmed that the cheque would be held by the solicitors in escrow and not be presented for payment before successful loan drawdown.  The defendant’s case is that it was on the basis of such assurance that it signed the supplemental agreement and handed over a new cheque.  This forms another major factual issue which I deal with below in the context of the defence of collateral agreement.

38. On 17 March, Mrs Crosthwaite went with Paul Law and Tony Lam to the offices of Wat & Co and signed the supplemental agreement on behalf of Lafe HK.  It appears that Simon Choi had already signed it on behalf of China Finance earlier that day so they did not meet him there. I shall refer below to this agreement as the “Supplemental Agreement”.  It provided as follows:

“(l) Both parties agree to split the Service Fees into two instalments, respectively to be received by Party B’s designated unit: the first instalment $25,000,000 Hong Kong Dollars [payable by Lafe Properties (Hong Kong) Limited’s company cheque], shall be received on behalf by Party B’s designated law firm in Hong Kong at same the time of the signing the Supplementary Commissioned Financing Consultation Agreement; the balance of the Service Fees shall be payable at the same time Party A and the Loan-providing Institution sign the formal loan agreement, Party A shall pay Party B by Lafe Properties (Hong Kong) Limited’s company cash cheque.

(2) The second instalment of Service Fees shall be the balance of 25% of Party A’s total loan amount minus the first instalment of $25,000,000 Hong Kong Dollars and the annual interest and handling charge under the Formal Loan Agreement.

(3)  Unless specially stated in this agreement, all terms and conditions in the Principal Agreement still have legal force.”

39. At the same time, Lafe HK and China Finance, by the same signatories, issued a letter to Wat & Co in these terms (“the 17 March 2010 joint letter”):

“1. Your firm is only responsible for attesting the signing of the Principal Agreement and Supplementary Agreement; your firm is not required to provide legal advice on the contents therein.

2. The Principal Agreement and Supplementary Agreement are drafted by ourselves and your firm has no legal liability.

3.  The payment and receipt of Service Fees under the Principal Agreement and Supplementary Agreement shall be arranged by ourselves; your firm has no connection with it.”

40. It will be seen that the Supplemental Agreement and the 17 March 2010 joint letter are broadly similar to but in some respects significantly different from the 9 March 2010 supplemental agreement and the 9 March 2010 joint letter (quoted in paragraph 26 above).  Critically, the part in clause (2) of the 9 March 2010 supplemental agreement which I have underlined in the quotation in paragraph 26 above was omitted in the Supplemental Agreement.  I shall return to the arguments about the differences later.

41. On the same occasion, a crossed cheque signed by Mr Christopher Ho on behalf of Lafe HK and dated 17 March 2010 for the sum of HK$25 million in favour of China Finance was handed over by Mrs Crosthwaite to Erik Lo.  I shall refer below to this simply as “the cheque”.

42. There is no dispute that the Agreement (together with the mandate agreement signed by Lafe GZ on 15 March) and the Supplemental Agreement superseded the earlier agreements.

Events leading to presentation of the cheque

43. On 18 March, Erik Lo sent a draft deed of mortgage to Tony Lam.  This document disclosed that the intended lender and mortgagee for a HK$200 million loan to Lafe HK was an entity called “AC Capital Partners”.

44. In the evening of 18 March, Tony Lam wrote to Carlos Chan stating that Guangzhou Rural Commercial Bank had allowed Lafe a grace period up to 19 March 2010 for full settlement of the outstanding loan, and asked China Finance to release the funds for drawdown the next morning.

45. It appears that there followed some communication between Tony Lam and Carlos Chan, for at 1 am on 19 March, Tony Lam wrote to Lafe’s management reporting that the lenders had changed the conditions of the offer.  In particular, as far as the loan of HK$200 million to Lafe HK was concerned, the proposal was that the existing mortgage over the Grande Building property would have to be redeemed so that the lenders would have a first mortgage.  As for the service fees, the sum of HK$34 million (HK$200 million times 30% less interest in the sum of HK$26 million) was to be settled by five to six instalments by cheques within three months or up to the completion of the PRC loan drawdown, whichever was earlier.

46. On 20 March, Tony Lam wrote to Carlos Chan as follows:

“3. As discussed, we will issue cheques for settlement of HKD 26M for interest portion and HKD 24M for professional service fee to China Finance. Pls let us have a confirmation that you company will only clear the cheque payments partially by installments after the date of HK loan drawdown. At the earliest, full service fees will be settled after the loan drawdown of GZ Lafe Electronic Components Co Ltd.

Item 3 is very important to us as we have to move additional funding of HKD30m from internal sources to pay off GZ Rural Commercial Bank. To partially pay the arrangement fees will ease our funding strain and to ensure this deal can be completed in time. We are bound to pay the fees as this is written in the legal contract.

…

The request of above confirmation will serve to clarify some uncertain points in this transaction, for protecting both parties interest and mitigating risk if any, we have intention to complete this deal and to pay all services fees as soon as poosible.  Please review and convey this message to Mr Choi and your company.” [sic]

The content of this email had actually been first settled in draft with Carlos Chan before it was formally sent to Carlos Chan for him to present it to China Finance’s or the lender’s credit committee.

47. On 23 March, Tony Lam sent an email to Carlos Chan with the subject of “summary” and stated:

“Balance of professional fee HKD 24M (ie HKD 200M x 25% – HKD 26M) to be settled by cheques by 5 installments within three months”.

It is however not clear from the email whether this is a summary of what Carlos Chan proposed to Tony Lam, or vice versa, or an agreed term.

48. On 24 March, Carlos Chan wrote to Tony Lam stating he hoped to push up the loan amount but needed more time to get internal approval.  He then outlined the “latest terms and conditions of the loan”, referring to a mortgage loan facility offer of HK$200 million to HK$300 million from AC Capital Partners to Lafe HK for one year on the security of the Grande Building properties.  The balance of the professional fee (after interest of 13%) was “to be settled by cheque(s) at the same date of loan drawdown” by Lafe HK.

49. There were further communications, probably by telephone, between the two sides.  They discussed, among other things, a revised payment schedule involving five instalments paid by five differently dated cheques.

50. On 28 March 2010, Sunday, the plaintiff says, Simon Choi, Carlos Chan and Tony Lam had a meeting at Intercontinental Hotel in Tsimshatsui.  Tony Lam proposed that the cheque for HK$25 million be replaced by five cheques of HK$5 million each post-dated to different dates.  The defendant denies there was a meeting at Intercontinental Hotel, but in his evidence Paul Law accepted that Tony Lam did speak with Carlos Chan at around that time.  I find that there was a meeting between the three of them (Simon Choi, Carlos Chan and Tony Lam) and that (as Paul Law also accepted) China Finance agreed as a concession to Lafe for the cheque to be exchanged for five post-dated cheques in equal amounts.  It seems from subsequent emails that, more likely than not, Tony Lam indicated that the first cheque could be payable before drawdown of the loan.

51. At about noon on 29 March, Erik Lo of Wat & Co sent a document to Tony Lam.  It was a further agreement on how the service fee of HK$25 million was to be paid, already signed by Simon Choi on behalf of China Finance, stating that the cheque (for HK$25 million) dated 17 March 2010 was to be exchanged for five cheques of HK$5 million each, to be paid on the following dates: -

	Payment date
The first instalment	29 March 2010
The second instalment	15 April 2010
The third instalment	30 April 2010
The fourth instalment	15 May 2010
The fifth instalment	30 May 2010

52. Erik Lo asked Lafe to review and sign the document that afternoon, but Tony Lam wanted to contact Carlos Chan first.  Later that day, Tony Lam wrote to Carlos Chan:

“We noted on the payment instruction letter that our first instalment cheque of HKD 5M should be credited to your account before drawdown. In this connection, in order to fulfil our internal legal requirement for the cheques issuance, would you please advise and confirm the schedule of the signing of the mortgage loan agreement and loan drawdown arrangement.”

53. On the morning of 30 March, Carlos Chan spoke to Tony Lam and pressed Lafe HK to exchange the cheques and sign the document before noon.  He wrote to Tony Lam shortly afterwards stating:

“Per our discussion on Monday, we intend to issue loan document on 1 April and arrange loan drawdown on the day after Easter holiday, on the condition that the first cheque of HKD5m for loan arrangement fee be deposited with China Finance via the law firm, Wat & Co., before end of banking hours yesterday. However, as of this moment, we have no notification that the mentioned cheque has been deposited with China Finance, any delay of the process would inevitably affect the final loan drawdown arrangement”. [sic]

54. That afternoon, Erik Lo also asked Tony Lam for a clear explanation of the situation so that he could report to Simon Choi later that day.  At 7:18 pm, Tony Lam wrote to Erik Lo (copied to Carlos Chan) stating:

“Referring to our conversation in this afternoon, please be advised that we are requesting with China Finance to settle the 1^st cheque of payment HKD 5M to be on the same date in line with the date of drawdown of loan HKD 210M.” [sic]

55. Later that evening, Tony Lam wrote to Carlos Chan explaining that the email was drafted by Lafe’s legal department and “might be legally over protective to our corporate interest”.  He indicated that the first instalment of HK$5 million was ready but Lafe’s management “could not obtain fully legal opinion to release such payment without any official loan offer agreement from the potential lender” [sic].  He asked if the parties could execute the transaction on a “more secured basis” “to enhance the confidence of both parties”.

56. It appears that by this time each side was having concerns about the other side’s credit.  Thus, on 31 March, Tony Lam went to the office address of China Finance in Wan Chai and reported to the management afterwards that the company name displayed at the address was “Excel Corporate Services Limited” and that he could not find the company name of China Finance in the directory of the building.  At 12:43 pm Tony Lam sent the following email to Carlos Chan:

“Referring to your telephone advice last night and as per our management instruction, kindly let us have your formal advice on any revised proposal or termination notice of the project finance. If the arrangement is terminated, please arrange to return all the documents (including financial, cheques, etc.) that we had passed to your company on this transaction.

Please let discuss if you have any inquiry. ”

57. Carlos Chan replied at 2 pm:

“Let’s make it clear that China Finance is in an inferior lending position when drawdown of loan HKD210m taking place without actual title of Grande Building in our recent offer.

Hence, depositing the HKD5m to us before the drawdown date is only considered as a commitment from the borrower and a token of comfort for the lender, in view of your group’s financial stance and other recent events.

Having considered your latest request and safe guard both parties’ interests, we have to change from an unsecured lending to a fully secured one, i.e. to obtain the title of the security on the first drawdown date, then deducting all the interest and fees before crediting the net proceeds to your account, for this transaction can be proceeded further.” [sic]

It seems to me that the phrase “your group’s financial stance and other recent events” is likely to be a reference to the law suits faced by Lafe’s chairman Mr Christopher Ho, the unfavourable financial condition of Lafe and possibly also the rumours that Lafe was seeking loans via persons other than China Finance, which are matters mentioned by Carlos Chan and Simon Choi in their evidence.

58. At 4:22 pm on the same day, Erik Lo of Wat & Co wrote to Tony Lam:

“We are instructed to inform you that China Finance & Assets Management Limited will stick strictly to the terms of 委託貸款咨詢合同dated 15 March 2010 and附加委託貸款咨詢合同 dated 17 March 2010. The terms stated therein will not be changed.”

59. On 31 March, the cheque for HK$25 million was presented by the plaintiff (i.e. China Finance HK) to its bank for payment.

60. On 1 April at 9:52 am, Tony Lam wrote to Carlos Chan as follows:

“I have called you over phone several times but cannot reach you at all. As advised by our F & A Department in this morning, China Finance has deposited the cheque of HKD 25M yesterday. Please reply immediately why your company has cleared the cheque as your revised finance proposal is still reviewing by our management committee for acceptance. China Finance is disregarding to our company’s right and benefit in this reviewing stage. Your unreasonable action is also incurred an additional bank commission over HKD 9k charged by the bank to Lafe Properties (HK) Ltd.”

61. At 11:16 am, Carlos Chan replied:

“I have not received any instruction from China Finance that the cheque would be cleared. In this case, please stop the cheque.”

62. In fact, as appears from the email of 8 April referred to below, Lafe HK had on 31 March or 1 April already countermanded the cheque.  China Finance received a notice to that effect from its bank.

63. On 7 April, Wat & Co issued a letter on behalf of China Finance to Lafe HK demanding payment of HK$25 million on the dishonoured cheque.  Upon receipt, Tony Lam wrote to Carlos Chan:

“Referring to our previous inquiry on why the cheque of HKD 25M would be cleared by your company on Mar 31, 2010 and your email advice to us dated Apr 1, 2010 to stop the cheque payment on it. Meanwhile, regarding to your last suggested offer which is pending for your credit committee’s approval, we are presenting to our board of management to set up meeting for review and comment. However, we received a fax from Wat & Co today, a copy of which is attached.

Please let us have your reasonable answer at this reviewing stage on your preliminary email proposal of offer structure: -

What is the purpose of the letter provided by Wat & Co? …”

64. On 8 April, Carlos Chan replied:

“Refer to my email dated 1 April, 2010 advising to stop your company cheque payment of HKD25m, it was based on your conversation that there is no sufficient fund in Lafe Properties (Hong Kong) Limited bank account on that day.

In fact, you have mentioned that the cheque has already been stopped by the bearer as you could not contact me until after 11am on the same day.

At this stage, it would be better to direct all your queries to the solicitors, Wat & Co., with regard to the legal issue of this cheque payment.

In addition, China Finance has received information that your Group is arranging finance through other sources. It may violating the contract with China Finance by using the same means. …”

65. On 15 April 2010, the plaintiff issued the writ in this action.

The loan eventually obtained by Lafe HK

66. The plaintiff suspected that Lafe HK had used the information the plaintiff provided, i.e. the identity of AC Capital Partners as a potential lender, to obtain loans directly without going through the plaintiff.  Some of the events in this connection are disputed, though the evidence adduced is limited.  The plaintiff says that because Lafe HK did eventually obtain a loan through a connection disclosed by the plaintiff, the plaintiff should be regarded as having performed its part of the contract and Lafe HK should be regarded as having breached clause 4 of the Dispute Resolution clause of the Agreement (quoted in paragraph 35 above).  However, since China Finance has not brought a claim for payment of sums due under the Agreement or for damages for breach, nor has Lafe raised total failure of consideration as a defence[1], clause 4 is not an issue.  Ultimately it seems to me the parties’ respective factual cases on the aftermath merely go to the credibility of their cases on the primary issues.

67. In this connection the plaintiff called Clarence Cheung, a partner of AC Capital Partners, to testify at trial.  His evidence relates principally to the arrangement of loans for Lafe HK by AC Capital Partners.  I find his evidence to be generally confusing and unreliable and not such as can be safely used without corroboration.

68. It is not disputed by the defendant that on around 13 April 2010, one James Chu approached Lafe by telephone and indicated that a credit line of HK$200 million was available to Lafe.  James Chu was registered as a partner of AC Capital Partners as of February 2010.

69. Clarence Cheung was another partner of AC Capital Partners.  On 16 April 2010, James Chu and Clarence Cheung went to the Grande Building for a meeting with Paul Law and Tony Lam.  On 18 April, AC Capital Partners suggested to Lafe that it should issue a letter to revoke the authority of China Finance to source loans for Lafe.  On 19 April, AC Capital Partners sent an offer on the letterhead of Tennex International Group Ltd, signed by James Chu as a director, offering two loans to Lafe HK totalling HK$200 million. 

70. On 21 April, Paul Law signed the agreement, whereupon he and Tony Lam were introduced to Lei Shing Hong Credit Limited (“Lei Shing Hong”) and China Yinsheng Finance (Holding) Limited (“Yinsheng”), which were apparently money lenders.  Thereafter Lafe negotiated directly with Lei Shing Hong and Yinsheng for the loans.  Eventually, in June 2010, Lafe HK obtained a loan of HK$40 million from Yinsheng on a second charge of the Grande Building properties.  It did not in the end obtain a loan from Lei Shing Hong, though the reason was obscure.

71. Meanwhile, on 14 May 2010, Lafe HK gave James Chu the sum of HK$100,000 by a cash cheque.  Paul Law tried to explain it was a payment to James Chu to ask him to mediate the dispute between Lafe and China Finance.  I find that explanation difficult to believe.  It is more likely that, as the plaintiff alleges, the sum was paid to James Chu as “tea money” for his help in introducing Lei Shing Hong and Yinsheng to Lafe.

III.  THE PARTIES’ CASES AND THE MAIN ISSUES RAISED

72. On these facts, the plaintiff’s case is simply that it is entitled to payment on the cheque of the sum of HK$25 million.

73. Lafe HK has raised a number of defences, as follows:

(1)  The entity that entered into the Agreement and the Supplemental Agreement with Lafe HK, and hence the payee of the cheque, was China Finance Samoa, not China Finance HK (ie the plaintiff).

(2)  The cheque was delivered conditionally to Wat & Co to be held in escrow on the condition that it would be presented for payment only upon the drawdown of the loan.  This is so because:

(a)  there was a collateral agreement between Lafe HK and China Finance to that effect;

(b)  it was the effect of the Agreement and Supplemental Agreement on their true construction; or

(c)  it was an implied term of the Agreement and Supplemental Agreement.

(3)  It was unlawful under s. 27(3) of the Money Lenders Ordinance (Cap. 163) for China Finance to enter into the Agreement and Supplemental Agreement and receive service fees.  The agreements and the cheque are as a result unenforceable.

(4)  The Agreement, Supplemental Agreement and the cheque constituted an unconscionable bargain.

74. In addition, Lafe HK has brought counterclaims against Carlos Chan, Simon Choi and China Finance HK.  If it is found liable to the plaintiff, then Lafe HK counterclaims on the following bases:

(1)  All three defendants by counterclaim together with persons unknown conspired against Lafe HK and charged it service fees in contravention of s. 27(3) of the Money Lenders Ordinance.

(2)  If it is found that Carlos Chan had given assurances to Lafe HK and in fact had no authority to represent the plaintiff, then he is liable to Lafe HK for breach of warranty of authority.

IV.  THE DEFENCES

75. In this section I deal with the defences raised by Lafe HK in turn.

A.  The identity of the payee of the cheque

(1)  The issue

76. The identity of the payee of a crossed cheque is of course fundamental.  It is common ground that where a crossed cheque is dishonoured, a right of recourse accrues only in favour of the payee. 

77. S. 7(1) of the Bills of Exchange Ordinance (Cap. 19) provides:

“Where a bill is not payable to bearer, the payee must be named or otherwise indicated therein with reasonable certainty.”

78. Any difficulty in establishing the identity of the payee because of an ambiguity in his description in the bill is resolved by reference to the intention of the drawer: Mead v. Young (1790) 4 TR 28; Bird & Co (London) Ltd v. Thomas Cook & Son Ltd [1937] 2 All ER 227, 231F; Chalmers & Guest on Bills of Exchange and Cheques (17^th ed), §2-049; Chitty on Contracts (31^st ed), vol.2, §34-023.  Where there are in fact two entities bearing the payee’s name on the bill, the drawer may give evidence to identify the intended payee: Chitty on Contracts (31^st ed), vol.1, §12-124.

79. In the present case, there is no dispute that the intended payee of the cheque is the counterparty with whom Lafe HK must be taken to have intended to enter into the Agreement and Supplemental Agreement. The object of the exercise is therefore to ascertain the party to the underlying contract.

80. The Supplemental Agreement and the cheque referred to China Finance without stating the company number.  The Agreement specified the relevant contracting party to be China Finance with the company number “4650”.  This is the number of China Finance Samoa.  The Agreement also states the address of China Finance as Hennessy Road, Hong Kong, but the address is of no probative value since, as Simon Choi accepted, it was natural for China Finance Samoa to use the Hong Kong address for the purpose of correspondence. On the face of the document, therefore, the contracting party was China Finance Samoa.  The plaintiff, however, contends that the number of 4650 was a “clerical mistake” and that the true contracting party was China Finance HK with the number of 1316714.

81. Where the identity of a party to a written contract is not clear from the document itself, it is clear that extrinsic evidence is admissible to establish it: Fung Ping Shan v. Tong Shun [1918] AC 403, 406; Chitty on Contracts (31^st ed), vol.1, §12-122.  In his opening submissions, however, Mr Bernard Man submitted on behalf of Lafe HK that where the contracting party is specifically identified in the document, oral or other extrinsic evidence is not admissible to contradict the document.  The basis of that submission is the majority decision of the House of Lords in Shogun Finance Ltd v. Hudson [2004] 1 AC 919 and in particular the statement of Lord Hobhouse at §49 that:

“… The gist of the argument is that oral evidence may be adduced to contradict the agreement contained in a written document which is the only contract to which the finance company was a party. The agreement is a written agreement with Mr Durlabh Patel. The argument seeks to contradict this and make it an agreement with the rogue. It is argued that other evidence is always admissible to show who the parties to an agreement are. Thus, if the contents of the document are, without more, insufficient unequivocally to identify the actual individual referred to or if the identification of the party is non-specific, evidence can be given to fill any gap. … But it is different where the party is, as here, specifically identified in the document: oral or other extrinsic evidence is not admissible.”

82. It seems to me Shogun Finance Ltd v Hudson is a different kind of case.  There a finance company signed a written hire-purchase agreement with a fraudster who used the name of another person (Mr Patel) with a stolen driving licence as proof of his identity.  The fraudster took the car from the car dealer on the strength of the hire-purchase agreement and sold it to an innocent purchaser.  The issue was whether the fraudster was the “debtor” under the hire-purchase agreement within the meaning of s. 29(4) of the (UK) Hire Purchase Act 1964 so that good title passed to the purchaser from the fraudster.  The purchaser argued that the real contract was between the rogue and the finance company.  He sought to argue by reference to extrinsic material that the finance company intended to deal with the person who claimed to be Mr Patel, and not with the real Mr Patel.  There was no argument based on a mutual mistake.

83. Here the plaintiff contends that it was clear to both parties that China Finance HK was the true party to the Agreement and that accordingly the reference to China Finance, notwithstanding the number of 4650, should be construed as China Finance HK.  It is an argument akin to a plea of rectification, though no rectification of the Agreement is needed or sought because the plaintiff is seeking to enforce the cheque (which did not contain the number 4650), not the Agreement as such. 

84. In this kind of case it seems to me extrinsic evidence is admissible to establish the true identity of the parties to the contract.  As Jackson LJ stated in Hamid (trading as Hamid Properties) v. Francis Bradshaw Partnership (2013) 148 ConLR 205 at §§57-58:

“57. In my view the principles which emerge from this line of authorities are the following:

i) Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.

ii) In determining the identity of the contracting party, the court’s approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.

iii) If the extrinsic evidence establishes that a party has been misdescribed in the document, the court may correct that error as a matter of construction without any need for formal rectification.

iv) Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless (a) the document makes clear that he signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or (b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer.

58.  In my fourth proposition the phrase ‘sufficiently identified’ is not a happy one.  It is intended to include cases where there is an inconsequential misdescription of the entity on behalf of whom the individual was signing.  This is exemplified by Badgerhill Properties.”

85. The point made by Jackson LJ in sub-paragraph (iii) above is a reference to the correction of mistakes by a process of construction.  As Lord Hoffmann explained in Chartbrook Ltd v. Persimmon Homes Ltd [2009] AC 1101 at §§22-25, this is not a separate branch of the law from ordinary construction of contract.  The requisite conditions for applying that approach were also explained in Chartbrook.  For a summary, I need only refer to the judgment of Ramsey J in Liberty Mercian Ltd v. Cuddy Civil Engineering Ltd (2013) 150 ConLR 124 at §§82 & 84, accepted by counsel on both sides as setting out the applicable approach:

“82. … First there must be a clear mistake on the face of the instrument when the document is read by reference to its background or context. …

84.  The second requirement set out in Chartbrook is that it must be clear what correction ought to be made to cure the mistake.  As Lord Hoffmann stated, it should be clear what a reasonable person would have understood the parties to have meant. …”

86. In the final analysis the question is one of construction, i.e. a question of ascertaining the meaning of the agreement entered into, including the description of the parties, applying the usual principles.  Where it is established that the written document embodying the agreement does not reflect the true agreement of the persons involved, the written document may be rectified by the court or so construed as to give effect to the true objective agreement.  As I have stated, in this case, since the action is brought on the cheque, formal rectification of the Agreement is unnecessary.  But the general approach is the same.  It is for the plaintiff to show that both sides intended Lafe HK should contract with China Finance HK, rather than with China Finance Samoa.  The inquiry as to what they agreed proceeds from an objective perspective.  As Lord Hoffmann said in Kowloon Development Finance Ltd v. Pendex Industries Ltd (2013) 16 HKCFAR 336 at §19:

“… the concept of rectification for common mistake involves carrying into effect what the parties appear to have actually agreed that the document should say. And in deciding what the parties have agreed, the common law adopts its usual objective stance, looking at what a reasonable observer would have understood the parties to mean and not concerning itself with their uncommunicated states of mind”.

(2)  The parties’ cases

87. The issue of the identity of the contracting party having been raised in the defence, the plaintiff pleads in its reply that the reference to the company number of “4650” was a clerical mistake and that the true contracting party was China Finance HK with the company number of 1316714.  Simon Choi’s defence to counterclaim pleads that the number 4650 was “[his] subordinate’s clerical mistake while preparing various agreements with [Lafe HK]”. 

88. The witness statement of Simon Choi, which was adopted as his evidence-in-chief, states that China Finance HK has its focus on Hong Kong while China Finance Samoa has its focus worldwide including Mainland China.  It also states that in July 2009, Tony Lam had approached China Finance Samoa to discuss project loans using the Panyu land, and that it is a “totally different project” from the transaction in question in this action.  Simon Choi says the company number 4650 was a clerical mistake and that it has always been the plaintiff’s case that the true contracting party is the plaintiff.  He asserts it is “perfectly clear” to him and Lafe HK that the cheque was given to him pursuant to the Agreement and was not in any way related to the project loans discussion between China Finance Samoa and Lafe HK.  Carlos Chan’s witness statement is to the like effect.  In his oral evidence, Simon Choi explained that the number 4650 had simply been inadvertently carried over from the initial agreement with Lafe GZ, which was used as a template to create the agreement with Lafe HK.

89. In the supplemental oral evidence-in-chief of Carlos Chan, he said that, at around the time when the first set of agreements were sent to Lafe, Tony Lam had asked him about the counterparty and that he told Tony Lam it was China Finance HK.  In cross-examination, Carlos Chan added that he had asked Simon Choi before relaying the information to Tony Lam.  Simon Choi gave supplemental oral evidence-in-chief to the same effect.

90. Lafe HK’s case, in contrast, is that, on 3 March 2010, Paul Law had caused a search to be conducted at the Companies Registry and found that China Finance’s company number was not 4650 but 1316714. Accordingly, on 15 March 2010, while attending at the office of Wat & Co for the execution of the third pair of mandate agreements, Paul Law specifically asked Erik Lo whether the counterparty was a Hong Kong company or an overseas company.  Erik Lo confirmed it was the latter.

(3)  Discussion

91. The original case of the plaintiff as pleaded and as set out in the witness statement of Simon Choi was based on the internal practice of the plaintiff’s group that China Finance HK would be used to deal with Hong Kong transactions whereas China Finance Samoa would be employed to deal with foreign transactions including PRC loans.  There is an assertion that the number 4650 was a clerical mistake and that it was clear to Lafe HK that the contracting party was China Finance HK, but no fact is stated to show why that should be clear to Lafe HK.  There is no plea or proof of any relevant communication to Lafe HK or that Lafe HK for some reason knew or ought to have known of the internal practice of the China Finance group.  In my view, the original case is in itself plainly insufficient to show that there was a common mistake in the Agreement in stating the company number to be 4650.  The proper approach is an objective one and focuses on facts known to both parties; their uncommunicated private thoughts are quite irrelevant: Liberty Mercian, supra, at §96; Hamid v. Francis Bradshaw Partnership (2013) 148 Con LR 205 at §57.

92. The additional oral evidence given by Carlos Chan and Simon Choi, alleging, inter alia, a specific conversation with Tony Lam wherein he was told the contracting party would be China Finance HK, must, in my view, be viewed with great scepticism. 

(1)  The alleged conversations were never mentioned in the plaintiff’s pleadings or the witness statements despite that the issue of the identity of the contracting party had been squarely raised.

(2)  Lafe HK’s defence and Paul Law’s witness statement specifically allege that he expressly asked Erik Lo whether the contracting party was a Hong Kong company or an overseas company and Erik Lo replied it was the latter.

(3)  That conversation between Erik Lo and Paul Law was specifically denied in the plaintiff’s reply.  If there had in fact been a different conversation in early March 2010 in which Tony Lam was told the opposite, it is inconceivable that it would not have been mentioned in the plaintiff’s reply.  It would be a crucial fact (not just a piece of evidence) which, if established, could prove a prior consensus and common understanding by reference to which the number 4650 might be shown to be a mutual mistake.  Despite the reply was amended in 2012 and re-amended in 2013, no plea of that communication was added.

(4)  The same point may be made with respect to Simon Choi’s own defence to counterclaim.

(5)  Simon Choi’s witness statement specifically covered the question of the proper contracting party.  There, he merely stated the number 4650 was a clerical mistake and that it was always the plaintiff’s case that the true party was China Finance HK.

(6)  No credible explanation has been given why the new case had never been raised before in the plaintiff’s pleadings or even witness statements.

(7)  The new case was only advanced during the trial, at a time when it was clear that Tony Lam, who had left Lafe and the Grande group and emigrated to Canada, would not be available to give evidence for Lafe HK and would not be called as a witness.

(8)  Furthermore, if the plaintiff’s new allegation is to be believed, China Finance would have been alerted to the question of the correct contracting party in early March 2010.  Yet the documents continued to state the company number of China Finance as 4650.  As accepted by the plaintiff, the company number was the means by which the Hong Kong and Samoan companies were distinguished internally.  Furthermore, the Agreement is one of the third pair of documents produced after the second pair was scrutinised by China Finance’s staff and found to contain mistakes.  It is to my mind inconceivable, if enquiry about the identity of the contracting party had expressly been made by Tony Lam and drawn to the attention of Simon Choi, that a mistake in the company number would have remained in the Agreement. 

93. For these reasons I hold that it is not open to the plaintiff to rely on the new case of an express communication with Tony Lam about the identity of the contracting party. 

94. In any event, for the same reasons, I do not believe the evidence of Simon Choi and Carlos Chan in relation to this new case. Counsel for the plaintiff argues that given that Paul Law had caused a company search to be made on 3 March 2010, it would be natural for Tony Lam to make an enquiry with Carlos Chan at about that time.  I do not think the timing of the company search is sufficient to displace all the matters referred to above.

95. This also throws doubt on the plaintiff’s allegation that the number 4650 was a clerical mistake.  Quite how the mistake was made was not clearly explained.  The subordinate of Simon Choi responsible for the mistake was not called to give evidence.  In his own evidence, Simon Choi sought to put the blame on Lafe for having created the first mandate agreement with Lafe HK using the template for Lafe GZ.  But on the plaintiff’s own case it was precisely for this reason that the second mandate agreement with Lafe HK was checked and found to contain errors with the result that it had to be replaced. It would be wholly surprising that a mistake of the nature alleged would remain in the agreement after it was scrutinised by China Finance in those circumstances.  Moreover, the number 4650 appeared not only on the front page of the Agreement but also on the signature page immediately and prominently below Simon Choi’s signature.  Assessing all the available evidence in the light of inherent probabilities, I find that the plaintiff has failed to prove that there was even a unilateral mistake on its own part. 

96. The above is sufficient to establish the defence.  For completeness, I also deal with Lafe HK’s positive case on the payee’s identity.  Paul Law’s evidence that he caused a company search to be conducted in relation to the plaintiff is supported by documentary evidence and not challenged.  Having called for a company search, it is credible that he raised a question with Erik Lo on 15 March 2010 since the company number of China Finance as stated on the Agreement (as well as the mandate agreement with Lafe GZ) was different from the one shown in the company search.  That was the first time Paul Law himself went to Wat & Co to sign a mandate agreement.

97. In this connection it is in my view significant that the plaintiff did not call Erik Lo to testify.  The plaintiff’s reply pleads that Paul Law did not ask Erik Lo whether the counterparty was a Hong Kong company or overseas company.  That averment is presumably based on information obtained from Erik Lo.  Erik Lo would naturally have been the person to give evidence to support that plea.  No acceptable explanation had been given for the plaintiff not to call Erik Lo to give evidence on that point.  Counsel for the plaintiff retorts that neither has the defendant explained why it has not called Erik Lo.  But it is clear that Erik Lo was, loosely speaking, China Finance’s lawyer at the time.  The defendant has called Paul Law.  It has filed a statement of Tony Lam which supported the evidence of Paul Law on this incident, although ultimately Tony Lam was not called.  No other witness was called by the plaintiff who was there together with Paul Law and Erik Lo on 15 March 2010.  In these circumstances, applying the established principles as quoted in Pacific Electric Wire & Cable Co Ltd v. Texan Management Ltd (CACV 90-91, 93-96/2012; 17 September 2013) at §§105-107, I consider that I am entitled to, and I do, draw an inference that Erik Lo’s evidence would not support the plaintiff’s case on this point. 

98. In the result I accept Paul Law’s evidence on this incident.

(4)  Conclusion

99. The plaintiff failed to prove that the number 4650 in the Agreement was a mistake.  In any event, even if Simon Choi or other persons in the plaintiff’s camp thought that the contracting party was China Finance HK, this private understanding was never communicated to Lafe HK and is therefore irrelevant.  Objectively, the Agreement, read in the light of the relevant background, means that the entity contracting with Lafe HK was China Finance with the company number of 4650, i.e. China Finance HK.  I find that Erik Lo did tell Paul Law on 15 March that it was an overseas company, not a Hong Kong company, that was the counterparty, without making any distinction between the two mandate agreements entered into by Lafe HK and Lafe GZ respectively. 

100. It follows that the contracting party to the Agreement and Supplemental Agreement, and hence the payee of the cheque as intended by Lafe HK, was China Finance Samoa.  The plaintiff is not the payee and has no right to sue on the cheque.  The action must fail on this ground alone.  In case I am wrong on this point, I deal with the other defences below.

B.  Whether delivery of the cheque conditional

(1)  The defence

101. The second defence raised by Lafe HK is that the cheque was delivered conditionally to Messrs. Wat & Co to be held in escrow on the condition that it would be presented for payment only upon the drawdown of the loan.  It is said that this condition arose via three alternative routes: (i) by reason of a collateral contract, (ii) as a matter of the construction of the Agreement and Supplemental Agreement, or (iii) by way of an implied term of those agreements.

102. S. 21(1) of the Bills of Exchange Ordinance provides that every contract on a bill is incomplete and revocable until delivery of the instrument.  Under s. 21(2)(b), as between immediate parties, which is the case here, “the delivery … may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill”.  S. 21(3) makes clear that unconditional delivery is presumed until the contrary is proved.  The burden therefore lies squarely on Lafe HK to prove that the delivery of the cheque was conditional.

(2)  Collateral agreement – admissibility

103. Lafe HK seeks to do so by alleging a collateral contract based on verbal assurances.  Its pleaded case is that:

(1)  “In particular, on 16 March 2010 [Carlos Chan] (acting on behalf of the Plaintiff) promised Mr Tony Lam (acting on behalf of Lafe Hong Kong) that the service fee payable to the Plaintiff was only payable upon drawdown of the loan”;[2]

(2)  it was “collaterally agreed between the Plaintiff (acting through [Carlos Chan] and [Simon Choi]) and Lafe Hong Kong”[3]:

(a)  “the service fees would be payable out of the proceeds of the first drawdown of loans obtained and not otherwise”;[4]

(b)  “a cheque for HK$25 million … would be deposited with the Plaintiff’s solicitors in escrow on the condition that the cheque would only be presented for payment upon drawdown of the loans”;[5] and

(c)  “the cheque would be delivered up and returned to the drawer if the Plaintiff failed to procure any loans for Lafe Hong Kong pursuant to the terms of the True Agreement, or if the True Agreement was terminated, in which event all service fees paid (if any) would have to be refunded in full”.[6]

104. Notably, the person to whom the alleged assurances were given, Tony Lam, was not called by the defendant to give evidence.  The oral evidence that it seeks to adduce is primarily the hearsay evidence of Paul Law, who said in paragraph 44 of his first witness statement that on 16 March 2010, after receiving the draft Supplemental Agreement:

“Tony reported that he has spoken to Carlos and was told that he would send us the loan agreement as soon as possible. Carlos and his boss would see that the cheque of HK$25M would only be held by [China Finance’s] solicitors in escrow, and would not be presented for payment before successful loan drawdown. Tony reported that as advised by Carlos, Lafe HK should sign the supplemental agreement as soon as possible to ensure that the available fundings were reserved for us.”

105. Mrs Crosthwaite’s statement was brief and in essence affirmed Paul Law’s statement in relation to matters involving her. 

106. The first question that arises is whether evidence of such verbal assurances is admissible in an action on a cheque.

107. The nature of cheques and actions on cheques has been explained in numerous cases.  Thus in SY Chan Ltd v. Choy Wai Bor [2001] 3 HKLRD 145, Recorder Kenneth Kwok SC stated:

“8. It has been said time and again that bills of exchange are treated as cash, Hong Kong Civil Procedure 2001, paragraph 14/4/19. In view of the formal nature of negotiable instruments, to admit extrinsic evidence would undermine the certainty and finality which ought to attach to each party’s promise on the instrument, Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes, 15th edition, paragraph 385.”

108. In Lam Tai Kwan v. Lo Wai Kit [2007] 1 HKLRD 367, Rogers VP stated:

“10. It is trite law that a cheque is an unconditional order in writing, addressed by a person to his banker, signed by the person giving it, requiring the banker to whom it is addressed to pay on demand a sum certain in money to or to the order of a specified person, or to bearer. As a written contract, it is subject to the parole evidence rule the effect of which is to bind a party to his contract as written on the instrument. Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those expressed in writing on the cheque. Thus whilst parole evidence is admissible to prove a contemporaneous oral agreement that the contract was not to become operative except upon the fulfilment of a condition, such evidence if it be evidence in defeasance of a party’s liability on the bill is inadmissible. As Mills-Owens J explained in Great Sincere Trading Co Ltd v Swee Hong & Co. [1968] HKLR 660 at 665:

‘If the existence of the written contract has to be conceded, as it must on the giving of a cheque, oral evidence is inadmissible to vary or contradict its terms. It may be said that what the defendants seek to allege is a contemporaneous oral agreement showing that what purported to be a complete contract, the cheque, never came into operative existence (Chalmer’s (13 Edn.) p. 57). In my view, that is not the proper interpretation to be placed upon the alleged oral arrangement, which, as I see it, sought to qualify the order for payment, to qualify the tenor of the instrument, to operate in defeasance of it, not to suspend the contract embodied in it.’

11. Great Sincere Trading as well as leading English authorities such as New London Credit Syndicate Limited v Neale [1898] 2 QB 487 at 490, 491 were cited with approval in Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135 at 138H where Hunter JA unreservedly endorsed the general principle that attempts to rely on a contemporaneous oral agreement to alter the terms of payment ‘are quite inconsistent with the written instrument and are not admissible in evidence’. As noted in Chalmers and Guest on Bills of Exchange and Cheques, 16^th Edn (at 2-155):

‘Most cases where the parole evidence rule has been applied are cases where a party to a bill or note has sought to qualify his absolute undertaking on the instrument by producing evidence of a contemporaneous oral agreement in defeasance of that undertaking, that is to say, that his liability is to be enforceable against him only in certain contingencies or that it is to be postponed to a time later than that expressed on the face of the instrument.  Since the effect of such evidence would be to contradict the terms of the instrument, it is inadmissible.’ ”

109. A distinction has been drawn between evidence to the effect that the bill is only delivered as an escrow or that it is not to take effect as a contract until some condition is fulfilled, which is admissible, and evidence to contradict or vary the express terms of the instrument, which is inadmissible by virtue of the parol evidence rule.  Numerous cases have been decided which illustrate the distinction.  Thus, in New London Credit Syndicate Ltd v. Neale [1898] 2 QB 487, the acceptor of a bill for £110 payable three months after date sought to adduce evidence of an agreement with the drawers that they would not part with the bill, and would renew it, if the acceptor was not in a position to pay it at maturity.  The Court of Appeal held that such evidence was not admissible.  A. L. Smith LJ said (at p 490):

“This document was signed and handed over as a bill of exchange, but there was an oral agreement that at maturity it should be renewed, if the defendant required it. In other words, although the written document states that the bill is to be met upon a day certain, the parol evidence is that it is not to be then met. Nothing is more clearly settled than that evidence of such an agreement is not admissible.”

110. In Great Sincere Trading Co Ltd v. Swee Hong & Co. [1968] HKLR 660, an Indonesian company, NV Lampong, wished to purchase goods from the plaintiff.  The plaintiff was not willing to trust the credit of that foreign firm, and it was accordingly arranged that the defendants should enter into the contracts with the plaintiff.  As a result the defendants drew a post-dated cheque in favour of the plaintiff, which was later dishonoured.  When the plaintiff brought an action on the cheque, the defence raised was that the cheque was given subject to an express oral condition that it would only be honoured if NV Lampong had put the defendants in funds to meet it before the due date.  Mills-Owens J said:[7]

“Is it a case then of the cheque being delivered as a mere escrow; was it, in the terms of section 21(2)(b), delivered conditionally and not for the purpose of passing the property in it? In my view, it is not such a case. The evidence of the alleged oral arrangement, as I see it, is an attempt to qualify the nature or tenor of the instrument; an attempt to introduce into the unconditional order for payment expressed by the instrument itself, a condition contrary to its terms. It is as if when the cheque was handed over the defendants said: ‘This is a cheque which is not a cheque unless we are put in funds’. The defendants, no doubt, would say their statement should be taken as: ‘This piece of paper is only to become, or be treated as, a cheque if and when we are put in funds’. But whichever way it is put the effect is to contradict the instrument, in the circumstances of the case, and that the defendants cannot be permitted to do on the strength merely of oral evidence.”

111. In Suen Ho Sun v. Kamenar International Ltd [1989] 1 HKC 135, the defendant purchased goods from the plaintiff, paid 70% of the price and drew a post-dated cheque for the balance of 30%.  Upon an action brought on the cheque, the defence was raised that the delivery of the cheque was subject to a condition precedent that the plaintiff would only be paid on the cheque if the goods were accepted by the defendant’s overseas sub-buyer, and that the plaintiff would not present the cheque for payment unless and until the goods were so accepted.  On appeal, Hunter JA said:

“This cheque was simply delivered as a cheque in part payment of the purchase price, the payment of the ‘balance of 30%’ of the purchase price as the deponent described it. What was really sought to be done here was to vary the conditions of payment by oral agreement. The cheque as it stood was an unconditional order in writing by the defendants to their bankers to pay the sum named to the plaintiff on or after 4th January. When all those oral conditions are read into it, the effect is quite different. It becomes, first, a conditional order to pay, conditional upon acceptance of the goods by the sub-buyer. Secondly it is not an order to pay on or after 4th January; it is an order to pay only after such acceptance happens and is communicated. Thirdly, by a second affidavit, it is said to be an unconditional order to pay unless countermanded earlier by this defendant. This really left the document as totally worthless in the plaintiff’s hands.”

112. In Lam Tai Kwan v. Lo Wai Kit, supra, the drawer sought to defend an action on three post-dated cheques on the ground that they were delivered not with the intention to pass the amount stated to the plaintiff but at the plaintiff’s request to provide him with something in hand “to ease the pressure from his family members”, and further that there was a collateral agreement that the plaintiff would provide supporting documentation to substantiate the actual amount due by the defendant.  The Court of Appeal held that the cheques were duly delivered to the plaintiff and not delivered in escrow.

113. Further examples from decided cases were given in the valuable summary in the judgment of Recorder Kwok SC in SY Chan Ltd v. Choy Wai Bor [2001] 3 HKLRD 145.

114. As I understand his position, Mr Bernard Man, appearing for Lafe HK, did not make any submissions against the validity of these authorities or generally against the parol evidence rule as applied to bills of exchange.  Instead he relies on Lin Hsien Tseng v. So Sin Mui Bonnie [2002] 4 HKC 532, where Mayo VP said:

“11. As we understand the position a defendant who is attempting to make use of section 21 has to establish that what was contemplated by the parties was that it was intended that the ‘cheque’ should be held in escrow by the payee such that the document did not have the qualities of a cheque at all as it had not been delivered.

12.   Certainly it is not enough to refer to oral testimony of conditions which have allegedly been imposed before the cheque can be presented for payment.”

Counsel contends that as Lafe HK’s case is that there was an oral arrangement that the cheque was to be held by solicitors in escrow, and that this is admissible under s. 21(1)(b) and not barred by the parol evidence rule.

115. In my judgment, evidence of the alleged oral arrangement is not admissible in this case.  The cheque was, quite simply, an unconditional order in writing by Lafe HK to its bankers to pay the specified sum to China Finance on or after 17 March 2010.  The case and evidence that the cheque was delivered to and was to be held by Wat & Co in escrow was in flat contradiction to the terms of the 17 March 2010 joint letter signed by Lafe HK and China Finance referred to in paragraph 39 above.  That document confirms that the solicitors firm had “no connection” at all with the payment and receipt of service fees.  As Ribeiro PJ stated in Ming Shiu Chung v. Ming Shiu Sum (2006) 9 HKCFAR 334 at §84:

“Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

116. There is no credible explanation from any witness on behalf of Lafe HK as to why the 17 March 2010 joint letter was signed if the true agreement was that the solicitors were responsible for holding the cheque in escrow pending the signing of the loan agreement and the drawdown of the loan.  Mrs Crosthwaite said that Tony Lam had told her it would be all right to sign the letter.  She accepted that she agreed to the arrangement set out in the letter, and explained that it was “not a big issue” at the time.  She said the letter did not state that China Finance could bank in the cheque at any time.  That is true, but what the letter clearly negatives is any suggestion that the solicitors were to hold the cheque in escrow.

117. Mr Bernard Man, counsel for Lafe HK, pointed to the fact that a similar joint letter was signed on 9 March 2010 in relation to the 9 March 2010 supplemental agreement (see paragraph 26 above), even though there is no dispute that the earlier cheque delivered on 9 March 2010 was not payable until drawdown.  I do not think this is a sufficient basis for disregarding the 17 March 2010 joint letter.  The cheque dated 9 March 2010 was handed over at the same time as the 9 March 2010 supplemental agreement.  That agreement expressly provided that the sum of HK$25 million would only be paid or deposited when Lafe HK received the first tranche of the loan.  It did not specify that Wat & Co was to be an escrow agent.  The 9 March 2010 joint letter does not seem to me to be inconsistent with the 9 March 2010 supplemental agreement.  It does not seem to me to be a sham.  Whatever may have been the understanding of Carlos Chan or Simon Choi (who seem to have thought that the solicitors would be custodian, though it is not clear if they had a clear understanding of the difference between an escrow arrangement involving the solicitors and an agreement merely by China Finance not to present the cheque until drawdown), there is no evidence that Wat & Co had in fact agreed, contrary to the 9 March 2010 joint letter, to be custodian of the cheque delivered under the 9 March 2010 supplemental agreement.

118. Mr Man further relies on an apparent answer by Simon Choi in cross-examination that both joint letters to solicitors were inconsistent with the facts, but this evidence which was explained in re-examination did not seem to me clear enough.  Mr Man asserts in closing submissions that the letters were likely to have been drawn up by Wat & Co in an attempt to disclaim liability and did not reflect the true position.  I am unable to accept this submission, which is nothing less than an allegation, made without any real evidential basis, that a solicitors firm had prepared and required the parties to sign a false document.  Moreover, the bill of costs of Wat & Co, paid by Lafe HK on 17 March 2010, which is mentioned in Paul Law’s statement, made no reference to Wat & Co having agreed to provide any service as an escrow agent or stakeholder or in any other capacity by way of holding the cheque.  There is no plea or evidence that the joint letter to Wat & Co dated 17 March 2010 was a sham, not intended to mean what it says.  Notably Mrs Crosthwaite gave no evidence that she signed it without reading it or without intending what it said.  On the evidence, there is no identifiable legal basis for ignoring the signed letter which plainly appears to be a legal document with operative effect.

119. In this respect I do not draw any adverse inference against the plaintiff for not calling Erik Lo to give evidence.  The 17 March 2010 joint letter speaks for itself.  It was signed by a director of the defendant in the presence of her colleagues.  None of the defendant’s witnesses suggested in their statements that the letter was a sham.  The burden was on the defendant to prove conditional delivery by way of an escrow arrangement involving the solicitors as alleged.  In these circumstances the plaintiff could not be expected to call Erik Lo to give evidence on the joint letter or on the alleged escrow arrangement.  Indeed it would have been open to the defendant to try to call Erik Lo as a witness on this point but it would appear that it chose not to do so.

120. Shorn of this alleged escrow arrangement with the solicitors, the evidence that there was an agreement that the cheque would not be presented for payment until drawdown of the loan seems to me, in accordance with the authorities cited above, to be in defeasance of the contract embodied in the cheque.  The effect of that evidence would be to vary and contradict the plain terms of the cheque itself and therefore, on established principles, quite inadmissible.  It is not rendered admissible merely because Lafe HK has chosen to call it a “collateral” contract.

(3)  Collateral agreement – the alleged oral agreements

121. In case I am wrong on the question of admissibility, I go on to deal with the allegations of fact regarding what happened between 15 and 17 March 2010.  As referred to in paragraph 37 above, both sides claim at trial there were oral discussions and agreement reached between Tony Lam on the one hand and Carlos Chan and Simon Choi on the other.  Their cases on the content of that agreement are however diametrically opposite to each other.

The oral agreement alleged by the plaintiff

122. The plaintiff contends that the result of the discussions was a consensus that Lafe HK would have to pay HK$25 million upfront.  The basis of that contention is the oral evidence of Carlos Chan and Simon Choi to the effect that there was an express agreement reached during a conversation among Tony Lam, Carlos Chan and Simon Choi on 15 March 2010.

123. This agreement was however never pleaded by the plaintiff, nor mentioned in any witness statement filed by it.  It is of course open to the plaintiff to take the view that its action is simply a claim on a dishonoured cheque, that the supplemental agreement means on its proper construction that the service fee is immediately payable, and that the oral agreement on 15 March 2010 is not a necessary part of its case.  But insofar as the plaintiff relies on that oral agreement as an agreement to which the supplemental agreement is subject or by reference to which it is to be construed, it clearly is a material fact required to be pleaded.  Yet in its statement of claim and, more importantly, its re-amended reply and defence to counterclaim, the plaintiff has never pleaded it, even as it denies the defendant’s case of what was orally agreed on 15 and 16 March 2010.  The failure to plead is made all the more intolerable by the absence of any reference to such oral agreement in the plaintiff’s witness statements.  Instead, the allegation only appeared for the first time in the oral supplemental evidence-in-chief of the plaintiff’s witnesses, when it is clear that Tony Lam would not be there to rebut it.  In my judgment, fairness requires in these circumstances that the plaintiff not be allowed to run any case based on the alleged oral agreement on 15 March 2010 referred to by Simon Choi in his evidence: see Sinoearn International Ltd v. Hyundai-CCECC Joint Venture (a firm) (2013) 16 HKCFAR 632 at §§30 & 34; Kwok Chin Wing v. 21 Holdings Ltd (2013) 16 HKCFAR 663 at §26.

124. In any event, although there may well have been oral communications at the time, I find Simon Choi’s and Carlos Chan’s evidence of what was agreed unreliable.  There is no credible explanation why it was raised so late.  Carlos Chan gave a lame excuse that it was implicitly mentioned in his witness statement.  But the paragraph he pointed to[8] does not in my view support his explanation at all.  Nor is there any reference to such oral agreement in any of the written communications in March or April 2010, for example, in response to Tony Lam’s email of 20 March 2010 (paragraph 46 above) or in Carlos Chan’s email of 31 March 2010 (paragraph 57 above).  Further, Carlos Chan’s and Simon Choi’s evidence is inconsistent in material respects. While Simon Choi said there was a conversation between them and Tony Lam on 15 March 2010, Carlos Chan said he only heard from Simon Choi that the payment terms would be altered and was later told by Tony Lam that China Finance would be entitled to present the cheque immediately. 

125. Accordingly, even if it is open to the plaintiff to seek a finding in terms of the oral agreement it alleges, I would reject the plaintiff’s evidence of such oral agreement.

The oral agreement alleged by the defendant

126. Even though I reject the plaintiff’s evidence of what was discussed with Tony Lam on or about 15 March 2010, it does not entitle me to infer from it a positive fact that, as Lafe HK contends, there was an express oral agreement to the opposite effect, namely, that the service fee was not payable until the loan was drawn down.  As Scrutton LJ said in Hobbs v. Tinling (C T) and Co Ltd [1929] 2 KB 1 at 21:

“… If by cross-examination to credit you prove that a man’s oath cannot be relied on, and he has sworn he did not go to Rome on May 1, you do not, therefore, prove that he did go to Rome on May 1; there is simply no evidence on the subject”.

See also Sukit Pachimsawat v. Hongkong and Shanghai Banking Corp [1981] HKC 137 at 148E-H per Huggins VP. 

127. It is necessary to examine the defendant’s own evidence of the oral agreement it alleges.  The email of Tony Lam to Erik Lo on 15 March 2010 shows that before the signing of the Agreement on that day, there was discussion about the terms of payment of the service fee.  However, the confirmation sought in that email was not forthcoming.  In fact, despite Tony Lam sought assurance that the wording of the Supplemental Agreement would be the same as the 9 March 2010 supplemental agreement, as a matter of fact Lafe HK agreed to a supplemental agreement with different wording. 

128. Lafe HK’s case is that there was an agreement on 16 March 2010 reached orally between Tony Lam and Carlos Chan after Lafe HK received the draft Supplemental Agreement.  Although it may be that oral collateral agreements are no longer viewed suspiciously as they were a century ago: Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at §55, they must still be proved by evidence.  Lafe HK faces two difficulties in this regard.  First, it has not called Tony Lam to give evidence.  Although he is in Canada, there is no explanation whether Lafe HK has tried to bring him to Hong Kong and, if he is unwilling to travel here, why it has not applied to have his evidence taken via video conferencing.  Secondly, the testimony of Paul Law on which Lafe HK principally relies is on this aspect far from satisfactory. 

129. Paul Law’s evidence-in-chief (as contained in his witness statements) was that, as quoted in paragraph 104 above, there was an oral agreement reached on 16 March 2010 that the cheque would only be held by Wat & Co in escrow, and would not be presented for payment before successful loan drawdown. 

130. His evidence under cross-examination and re-examination is inconsistent with his witness statements.  He said at the trial that during the discussion on 16 March 2010, Carlos Chan told Tony Lam that Simon Choi was to hold the cheque and would not present the cheque, that China Finance would produce a further supplemental agreement (beyond the one to be signed on 17 March 2010) to be entered into regarding payment of service fee, and that Lafe should not miss the opportunity of obtaining the loan just because the Mainland part of the loan was not ready.  Paul Law added that it was on the basis of Lafe’s trust in what Carlos Chan had said that they signed the Supplemental Agreement and handed over the cheque on 17 March 2010.  This seems to me to be quite different from the pleaded escrow arrangement involving the solicitors firm Wat & Co as custodian. 

131. When asked whether there was any “stakeholding agreement” in respect of the cheque, Paul Law said he was not clear.  It is also not clear, under this new version of the alleged oral agreement, whether the cheque for HK$25 million could be presented at all, or whether it was to be held by Simon Choi until it was replaced by some other cheque or cheques drawn pursuant to a further supplemental agreement, which never came into being.  Paul Law’s oral evidence given at trial does not seem to me to support the collateral agreement pleaded by the defendant.

132. His evidence about what discussions there were was confusing.  Under cross-examination he said there was no discussion between Tony Lam and Carlos Chan after 9 March 2010 up to the signing of the Agreement on 15 March 2010, but later on said there was discussion every day.  He was led in re-examination to draw a distinction between negotiation and discussion, but I remain highly sceptical about his recollection of the events especially bearing in mind that his evidence was hearsay. 

133. Paul Law was asked about Tony Lam’s email to Erik Lo of 15 March 2010 (see paragraph 31 above), which clearly contained a request to confirm the payment terms with China Finance.  Paul Law’s insistence that the email was only meant to remind Erik Lo of the terms of the previous supplemental agreement does not make sense to me.

134. He also gave inconsistent evidence as to whether the terms of the Agreement (signed on 15 March 2010) were sufficient to protect Lafe’s interests.  In his statement he suggested that because the terms were considered insufficient to protect Lafe, Tony Lam was instructed to communicate with China Finance.  Under cross-examination, however, he said that the Agreement was drafted in such a way that Lafe’s position was well protected.

135. Moreover, when cross-examined as to whether he knew Carlos Chan had no authority to bind China Finance, Paul Law gave an affirmative answer.  He gave the opposite answer in re-examination but there was no explanation at all why he gave the earlier answer.

136. As stated in paragraph 40 above, there are certain words in the 9 March 2010 supplemental agreement which were conspicuously absent from the Supplemental Agreement.  Paul Law accepted that those words were considered very important for the protection of Lafe, but his explanation as to why Lafe would agree to omit them from the Supplemental Agreement is unconvincing.  He said at one stage it was based on “trust”, but this does not sit well with the contemporaneous documents showing Lafe was very careful with the wording of the various agreements.  Moreover, it is an established principle of Hong Kong law and English law that “a bill of exchange or a promissory note is to be treated as cash.  It is to be honoured unless there is some good reason to the contrary”: per Lord Denning MR in Fielding & Platt Ltd v. Selim Najjar [1969] 1 W.L.R. 357 at 361.  The documentation was scrutinised by Lafe’s in-house legal counsel before it was signed.  It is difficult to accept that a listed group acting under legal advice could have handed over a cheque, not intending immediate delivery, without at least a clear written record to that effect.

137. Paul Law also said Lafe agreed to the omission of the words because if the loan amount was zero, then a service fee equal to 25% of the loan amount would be zero.  But the same would be true in relation to the 9 March 2010 supplemental agreement.  This reason seems to me hardly consistent with Lafe’s earlier insistence that there be express confirmation that the service fee would not be payable until loan drawdown.

138. In the end, I find that the evidence of Paul Law on this question is of little value given that it is hearsay and given the problems with his evidence illustrated above.  The fact is that the central figure, Tony Lam, is not available to give evidence on the alleged oral assurances.  Paul Law can hardly be in a position to tell what exactly Tony Lam was told by Carlos Chan.  What Paul Law and the rest of Lafe’s management received would simply be what Tony Lam conveyed to them.  And one cannot even be certain of what Tony Lam reported to them, since, surprisingly, there was no internal email or other report written by Tony Lam to the management to inform them of the alleged assurances by Carlos Chan, on the basis of which, on Lafe HK’s case, it agreed to sign the Supplemental Agreement and hand over a HK$25 million cheque the next day.  In any event, whatever Tony Lam reported might have incorporated his own subjective interpretation of the position.

139. The evidence of Mrs Crosthwaite does not take matters much further.  She simply adopted Paul Law’s evidence, and asserted her understanding was that the service fee was only payable upon drawdown of the loan.

140. Nor can the alleged collateral agreement be in my view inferred from the contemporaneous documents.  One can see from the documentary evidence available that Tony Lam was a meticulous man who habitually recorded or sought written confirmation of significant communications.  If an assurance as important as the one alleged was given, one would have expected a email from Tony Lam putting it on record. There was none.

141. There is no reference at all to any such oral agreement or assurance in any of the contemporaneous emails.  In his email dated 20 March 2010 (quoted in paragraph 46 above), Tony Lam requested confirmation that China Finance would only clear the split cheques for instalment payments after loan drawdown, saying that such confirmation would “serve to clarify some uncertain points in this transaction, for protecting both parties …”.  This, in my view, was a far cry from an indication that there had been an unequivocal assurance that the service fees were not payable before loan drawdown.  While in his email dated 1 April 2010 Tony Lam asked Carlos Chan why China Finance had banked in the cheque when the revised loan proposal was still being reviewed by Lafe, it does not refer to any agreement that the cheque should be held by the solicitors in escrow or that the service fee was not payable until drawdown.  Moreover, there is a ring of truth in Carlos Chan’s explanation that he felt surprised the cheque was presented because the parties were negotiating new terms of payment.  That email is in my view plainly insufficient to justify an inference of the alleged oral agreement.

142. Further, as I have already explained, the notion that the cheque would be held by Wat & Co in escrow until successful loan drawdown is quite inconsistent with the 17 March 2010 joint letter to the solicitors.  There was no complaint from Lafe HK to Wat & Co after the cheque was presented that they acted contrary to some escrow or custodian arrangement.  Further, even in Lafe HK’s letter dated 19 April 2010 in response to the plaintiff’s letter before action, there was no reference to any oral agreement on 16 March 2010.  Instead, references were made only to “correspondences” [sic] between Carlos Chan and Tony Lam.

143. Nor can I infer the alleged collateral agreement or assurance from the fact that the cheque was not immediately presented for payment.  There is no dispute that very soon after the Supplemental Agreement was executed and throughout the latter part of March 2010 there were further discussions between the two sides through Tony Lam and Carlos Chan for the service fee to be paid by instalment.  I also find that Tony Lam had told China Finance Lafe’s cash flow problems (as evidenced by the email of 20 March).  Under cross-examination Paul Law accepted that, eventually, as a concession to Lafe, China Finance agreed that the cheque for $25 million could be exchanged for five cheques payable on different dates, though neither side suggests that a binding agreement was reached to that effect superseding the Supplemental Agreement.

Conclusion

144. Having evaluated the available evidence, I conclude that the defendant, on whom the burden rests, has failed to prove the pleaded oral collateral agreement that, inter alia, the cheque would be held by Wat & Co in escrow until successful loan drawdown and the service fee would not be payable until such drawdown.

145. The probabilities are that there were indeed oral communications among Tony Lam, Carlos Chan and possibly Simon Choi shortly prior to the Supplemental Agreement.  However, in the special circumstances of this case, where Tony Lam has not given evidence, and Simon Choi’s and Carlos Chan’s evidence on such communications cannot properly be relied upon (for the reasons I have already given), I do not think it is necessary or appropriate for me to try to make a positive finding as to what the parties actually discussed and agreed.

(4)  Construction of the Agreement and Supplemental Agreement

146. In contrast to an alleged oral agreement purporting to affect the operation of a bill of exchange, the court is more ready to take account of a written agreement executed contemporaneously with a bill.  Thus in Neo-Concept Industrial Co Ltd v. Sportex Industrial Ltd [1992] 2 HKC 452 at 457I, Ryan J said:

“There was not in those authorities a written contemporaneous contract as there is in this case. Where there is such a document from which the contract evidenced in the bill emanates, it can be considered to see if there is any vitiating factor which deprives the contract written in the cheque of its binding character.”

147. It is clear therefore that the Agreement and Supplemental Agreement can be examined to see if they contain anything that detracts from the prima facie unconditional nature of the cheque.  The meaning of these agreements is to be ascertained as a matter of construction.  While the court may take note of relevant events and exchanges between parties leading to Supplemental Agreement and Cheque, for the purpose of construction what happened subsequently generally cannot be taken into account: Marble Holding Ltd v. Yatin Development Ltd (2008) 11 HKCFAR 222 at §22; Zhuhai International Container Terminals (Jiuzhou) Ltd v. Lo Tong Hoi (CACV 181/2011; 31 July 2012), at §22.

148. It is common ground that the previous agreement and supplemental agreement may be looked at as part of the factual matrix for the purpose of construction.  Where a later contract between the same parties differs from an earlier contract, one may infer a deliberate intention to depart from the earlier wording: HIH Casualty and General Insurance Ltd v. New Hampshire Insurance Co [2001] 2 Lloyd’s Rep 161 at §83; Dunlop Haywards (DHL) Ltd v Barbon Insurance Group Ltd [2009] EWHC 2900 (Comm) at §183.

149. The Supplemental Agreement was entered into by the parties to deal specifically with the question of payment of service fee. On their face its terms do not qualify or vary the effect of the cheque which was issued and delivered pursuant to those terms.  There is a conspicuous difference in the wording of the two supplemental agreements (quoted in paragraphs 26 and 38 above respectively).  The words omitted in the Supplemental Agreement are of great importance to Lafe HK, as admitted by Paul Law.  Mr Chong submits on behalf of the plaintiff that the intention of the parties can simply be ascertained from the omission of the words in question in the Supplemental Agreement.  I think this may be putting the point too high. While I agree that it is a matter to be taken into account, the Supplemental Agreement still has to be construed in the usual way.

150. I am unable to construe the Agreement and Supplemental Agreement, against the established factual background, to give rise to the conditions pleaded by Lafe HK, in particular that the cheque was delivered conditionally to be held by Messrs. Wat & Co in escrow on the condition that it would not be presented for payment before the drawdown of the loan. 

151. Mr Man argues on behalf of Lafe HK that very clear and explicit terms would be required to show that the plaintiff should be paid the service fee before the loan agreement was entered into.  But this is to ignore the fact that a cheque was delivered by the defendant to China Finance.  I do not think there could be a presumption that the meaning of the agreements was that the cheque could not be presented before the loan agreement was executed.

152. Mr Man argues that, comparing the 9 March 2010 supplemental agreement with the Supplemental Agreement, the interposition of the solicitors for receiving the cheque counter-balances and explains the removal of the term that the plaintiff was not entitled to present the cheque for payment until loan drawdown.  In other words, because the cheque was to be received by solicitors and held by them in escrow, the clause restricting presentation was unnecessary and removed.  I am unable to accept this submission.  The relevant documents, read as a whole, cannot properly be construed as giving rise to an escrow agreement as alleged.  The Supplemental Agreement refers to the solicitors receiving the cheque on behalf of China Finance, not in escrow.  The 17 March 2010 joint letter is quite incompatible with any arrangement involving the solicitors as escrow agent.  Moreover, even if there were an escrow arrangement, it would not be a reason for omitting the words in question.  There is no separate escrow agreement.  The solicitors would have to see from the Supplemental Agreement itself when the cheque became payable and could be released to China Finance.

153. Moreover, the Supplemental Agreement stipulates that the second tranche of the service fee would be payable by cash cheque (as opposed to “company cheque” in the 9 March 2010 supplemental agreement) upon the signing of the loan agreement with the lender.  It would be quite unnecessary to change that term if the second tranche of the service fee was also not payable until drawdown.

154. Mr Man argues there was no reason for any fundamental change in the intention of the parties during the eight days between the two supplemental agreements.  I find the argument not established. It is clear that the Lafe group was not in great financial shape at the time. Paul Law admitted that no bank would be willing to lend money to Lafe then, hence the need for it to resort to sourcing loans from money lenders through agents like China Finance.  Because of the imminent deadline for repaying Guangzhou Rural Commercial Bank, time was running out for Lafe.  There was little opportunity to find alternative financing.  Paul Law said that Lafe had (by 19 March 2010) been “trapped”.  In the context of the defence of unconscionable bargain, the defendant itself has submitted that it was in a “vulnerable financial position” and “weak bargaining position”.[9]

155. It is said that since the service fee is 25% of the total loan amount, if no loan was eventually lent, no service fee would be payable, and the cheque should therefore also not be payable.  In my view this argument does not take the analysis further.  The contemplated loan was clearly in the region of over HK$200 million.  If no loan was eventually lent then it may be that any part of the service fee, if payable in advance, would have to be returned.  The point in issue is the timing of the payment of the service fee in the first instance.  The argument simply begs the question of what the parties’ true agreement on that was.

156. Mr Man also argues that the contract would be unworkable where the total loan amount was such that 25% of it was less than HK$25 million.  It seems to me if the service fee is payable upfront, it must be an implied term that any excess would have to be returned.  Simon Choi frankly admitted that if no loan was arranged in the end, the payment, if already received, would have to be returned to Lafe.  Likewise, if the loan arranged was such that 25% of it was less than HK$25 million, the excess would have to be repaid.  Mr Man says that no such term has been pleaded by the plaintiff. But it is not material to an action on a dishonoured cheque.  The defences available on such an action are limited but they do include total failure of consideration, and (as between immediate parties) partial failure of consideration provided the partial failure is an ascertained and liquidated amount: Suen Ho Sun v. Kamenar International Ltd, supra, at 139-140. It is notable that Lafe has not raised a defence on this basis with any allegation that the plaintiff had failed to procure any loan at all or any loan more than HK$40 million.

157. Lafe has not advanced the argument that it would be unworkable to require it, as the borrower who was in need of funds, to pay part of the service fee upfront.  There is in any event no evidence that Lafe could not pay a service fee of HK$25 million in advance.  On the contrary, Tony Lam’s email of 20 March 2010 (see paragraph 46 above) rather suggests that Lafe could raise such amount of funds within the group.

158. I conclude that there is nothing in the Agreement or Supplemental Agreement that detracts from or qualifies the unconditional effect of the cheque.

(5)  Implied term

159. The defendant also relies on an implied term to similar effect as the collateral agreement.  Mr Man refers to the well-known passage in the Privy Council’s opinion delivered by Lord Hoffmann in Attorney General of Belize v. Belize Telecom Ltd [2009] 1 WLR 1988 at §21 in which his Lordship said that in every case the question is simply: “is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?”  It seems to me that in the context of this case, the plea of implied term is no more than a different label put on the same points as those raised in the construction argument.  For the reasons I have already given, I find that the defendant has failed to establish the implied term contended for.

(6)  Conclusion

160. For the reasons above, I conclude that the defendant has failed to prove that the cheque was delivered conditionally on any of the pleaded bases.

C.  The Money Lenders Ordinance defence

161. As a further defence, Lafe HK relies on s. 27(3) of the Money Lenders Ordinance (Cap. 163).

162. S. 27(3) provides:

“(3) Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.”

163. Lafe HK argues that AC Capital Partners, Lei Shing Hong and Yinsheng were money lenders, that the plaintiff was a person acting “in collusion with” such money lenders, and that the service fee in question was “remuneration … in connection with or preliminary to procuring, negotiating or obtaining [a] loan”.  Lafe HK contends therefore that the Agreement and Supplemental Agreement as well as the cheque are illegal under s. 27(3) and therefore unenforceable.

164. The short answer to this is that money lender is defined in s. 2 of the same Ordinance to exclude, “as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan”.  Paragraphs 2 and 12 of Part 2 (Exempted Loans) of Schedule 1 are relevant here, since the loan was to be secured by a second mortgage over units in the Grande Building and Lafe HK, the intended borrower, had a paid up capital of not less than HK$1 million.  The loan, if made, would therefore be an exempted loan, and the lender would not be regarded as a money lender within the meaning of the Ordinance.  Mr Man valiantly argues that each of the exemptions in Part 2 of Schedule 1 applies only to a “loan made” but that s. 27(3) applies even if a loan is not made in the end.  He says there was eventually in this case no loan made that was attributable to the Agreement and Supplemental Agreement and the exemption was therefore inapplicable. 

165. In my view, this is not a sensible interpretation of the statute.  S. 27(3) also refers to “loan made” and it seems to me the phrase should be interpreted in the same way in that section as in Part 2 of Schedule 1.  Accordingly, either both the prohibition and the exemption are inapplicable because there was no loan made, or both are applicable despite there was no loan made.  It is unnecessary to decide which is the true construction, since in either case there would be no illegality.  As Mr Chong points out, Mr Man’s argument would lead to the anomaly that in the case of an exempted loan, an agreement would be illegal before the loan was advanced, but upon the loan being advanced the same arrangement would become legal.  Likewise, the person who charged remuneration in connection with procuring, negotiating or obtaining the loan would be committing an offence (see s. 29(10)) if the loan fell through, but would be exempted if the loan was made.  I reject this construction and the defence built on it.

D.  The defence of unconscionable bargain

166. As a last resort, Lafe HK also pleads that the transaction was an unconscionable bargain. 

167. This defence can also be shortly disposed of.  As Mr. Peter Millett QC (as he then was) sitting as a deputy High Court Judge stated in Alec Lobb Ltd v Total Oil (GB) Ltd [1983] 1 WLR 87 (reversed in part at [1985] 1 WLR 173) (see also Lo Wo v Cheung Chan Ka [2000] 2 HKLRD 370 at 381B-382F), three elements must be established to justify interfering with a contract on the ground of unconscionable dealing:

“First, one party has been at a serious disadvantage to the other, whether through poverty, or ignorance, or lack of advice, or otherwise, so that circumstances existed of which unfair advantage could be taken: see, for example, Blomley v. Ryan (1954) 99 C.L.R.362, where, to the knowledge of one party, the other was by reason of his intoxication in no condition to negotiate intelligently; secondly, this weakness of the one party has been exploited by the other in some morally culpable manner: see, for example, Clark v. Malpas (1862) 4 De G.F.& J.401, where a poor and illiterate man was induced to enter into a transaction of an unusual nature, without proper independent advice, and in great haste; and thirdly, the resulting transaction has been, not merely hard or improvident, but overreaching and oppressive. Where there has been a sale at an undervalue, the under-value has almost always been substantial, so that it calls for an explanation, and is in itself indicative of the presence of some fraud, undue influence, or other such feature. In short, there must, in my judgment, be some impropriety, both in the conduct of the stronger party and in the terms of the transaction itself (though the former may often be inferred from the latter in the absence of an innocent explanation) which in the traditional phrase ‘shocks the conscience of the court,’ and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained.”

See also the principles set out by the Privy Council in Boustany v. Pigott (1995) 69 P & CR 298, 303, adopted by the Court of Appeal in Tong Kwok Cheong v. Tong Wai Lin [2014] 1 HKLRD 339 at §35.

168. Lafe HK was a subsidiary of a listed company managed by experienced businessmen.  The relevant agreements had been examined by Lafe’s management and in-house legal counsel.  On this basis there can be little scope for contending that a transaction it freely entered into ought to be set aside as an unconscionable bargain: see N. Enonchong, Duress, Undue Influence and Unconscionable Dealing (2^nd ed), §19-010.  In any event, on my findings, Lafe HK has failed to prove any relevant assurance which was reneged upon or other culpable conduct on the part of China Finance. 

169. Furthermore, the plea of unconscionability was advanced on the premise that the service fee of HK$25 million could be kept by China Finance even if it failed to source any loan for Lafe HK.  This however is not necessarily the proper interpretation of the contract.  As Simon Choi accepted while giving evidence, if no loan was procured by China Finance through no fault of Lafe, then the service fee would have to be returned to Lafe HK.  Even in the absence of that admission, I would have thought that must be implicit in the contract.  In any event, in that scenario, a claim on the cheque could be defended, and money already paid would be repayable, on the basis of a total failure of consideration (a defence that Lafe HK has notably not pleaded).  On this basis it cannot be said that the overall arrangement was so oppressive as to “shock the conscience of the court”.  This defence must therefore fail.

V.  THE COUNTERCLAIMS

170. The counterclaims raised by Lafe HK are only relevant if the plaintiff succeeds in its claim against Lafe HK.  Since I have found that the action should fail, the counterclaims fall away.  In case I am wrong in my conclusion on the action, however, I shall briefly state my views on the counterclaims.

171. The counterclaim for conspiracy is a claim against the plaintiff, Simon Choi and Carlos Chan for conspiracy using unlawful means. The unlawful means is said to be the levying of service fees in contravention of s. 27(3) of the Money Lenders Ordinance.  Since, for the reasons I have given above, I am satisfied that there is no infringement of s. 27(3), I would for that reason have dismissed this counterclaim.

172. The counterclaim against Carlos Chan alone for breach of warranty of authority arises only if it is found that Carlos Chan did give the alleged assurances to Tony Lam but in fact had no authority to do so on behalf of China Finance.  Since I find that Lafe HK has failed to prove the assurances in question, the counterclaim fails. 

173. If I had found that assurances were given by Carlos Chan, the further question would have arisen as to the exact terms of the assurances, because, as stated in paragraph 135 above, Paul Law’s evidence is at best equivocal as to whether he believed Carlos Chan to have authority to bind China Finance.  The tenor of the emails exchanged between Carlos Chan and Tony Lam indicates, in my view, that Carlos Chan was more a channel of communication than decision-maker.  In an email to Lafe’s management on 9 March 2010, Tony Lam noted that Carlos Chan was waiting for the result of discussions within China Finance before he could revert to Lafe.  In his email of 20 March 2010, Tony Lam asked Carlos Chan to convey the message to Simon Choi and China Finance.  It seems to me that Carlos Chan did have authority to communicate China Finance’s position as such to Lafe, but that to Lafe’s knowledge, what he represented to Lafe as his own views or projections would not be binding on China Finance.

VI.  CONCLUSIONS

174. For the reasons explained above, I uphold the defence that the plaintiff is not the payee of the cheque.  I reject the other three defences raised.  The plaintiff’s action must therefore be dismissed.

175. The defendant’s counterclaims against the plaintiff, Simon Choi and Carlos Chan for conspiracy and against Carlos Chan for breach of warranty of authority are also dismissed.

176. I shall give directions separately for costs of the action and the counterclaim to be determined.

177. I thank counsel for their assistance.