CHRISTINE RUTH ONG CHAI HOON AND OTHERS v. LAM KIN CHUNG AND OTHERS

HCA 1793/2012

[2025] HKCFI 3857

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1793 OF 2012

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J U D G M E N T

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Table of Contents

INTRODUCTION

Brief introduction of the plaintiffs’ case

Brief introduction of KC Lam, eBiz and Tommy Lai’s cases

The evidence

Procedural history

Structure of this judgment

DRAMATIS PERSONAE

The plaintiffs

The defendants

Entities involved in the Investment Structure

Entities involved in the IPO exercise

Entities featuring in the Revenue Misrepresentation

Entities featuring in the Company Valuation Misrepresentation

Entities featuring in the High Profile Partners Misrepresentation

Entities featuring in the High Profile Investors Misrepresentation

Entities featuring in the KC Lam Credentials Misrepresentation

THE PLAINTIFFS’ CASE

An outline

The plaintiffs’ case is narrated with reference to the Fraudulent Misrepresentations, rather than to the plaintiffs

From around June 2006 to July 2009

The Investment Structure

The Revenue Misrepresentation

The Company Valuation Misrepresentation

The High Profile Partners Misrepresentation

The High Profile Investors Misrepresentation

The KC Lam Credentials Misrepresentation

The Car Park Security Misrepresentation

The IPO Prospects Misrepresentation

The False IPO Notification

The IPO exercise and further direct subscriptions

The exposure of the Fraudulent Scheme

The False IPO Notification exemplifies the fraudulent intent

The plaintiffs’ prior investment experiences

Reliefs against KC Lam and eBiz

The plaintiffs’ case against Tommy Lai

KC LAM AND EBIZ’S CASE

KC Lam’s background

WebExpress

eBiz

Desmond Yue

eBiz was presented as an IT start-up with potential but no track record

The Investment Structure

KC Lam and eBiz took steps towards an IPO

eBiz appointed Collins Stewart for the IPO and the investors converted their loans into eBiz shares

The IPO exercise and further direct subscriptions

Failure of the IPO

The Revenue Misrepresentation

The Company Valuation Misrepresentation

The High Profile Partners Misrepresentation

The High Profile Investors Misrepresentation

The KC Lam Credentials Misrepresentation

The Car Park Security Misrepresentation

The IPO Prospects Misrepresentation

Important facts providing the context for KC Lam and eBiz’s case

TOMMY LAI’S CASE

THE WORKING CAPITAL POINT

CREDIBILITY

The plaintiffs’ contradictory position on the Revenue Misrepresentation

The plaintiffs’ incoherent position on the False IPO Notification

The plaintiffs’ case against Tommy Lai is not made out on their own evidence

The plaintiffs seem to have “constructed” their case based on documents and information obtained from others, with no personal recollection of their own

The plaintiffs’ case of fraud is at odds with contemporaneous documents

KC Lam’s evidence is generally consistent internally and more coherent and inherently plausible than the plaintiffs’

The plaintiffs fails to show that KC Lam was involved in preparing the key documents concerning the Fraudulent Misrepresentations

Tommy Lai is a credible witness

Other evidential points

Overall assessment

FACTUAL FINDINGS

RULINGS

CONCLUSION

INTRODUCTION

1.  Mr Lam Kin Chung, the 1^st defendant, is a Hong Kong businessman.  I shall call him “KC Lam” in this judgment.  In 2004, he acquired the 4^th defendant, a Hong Kong incorporated company.  Its name was later changed to the present name of eBizAnywhere Technologies Ltd (環貿通科技有限公司).  I shall call it “eBiz”.  At all times, KC Lam is the ultimate beneficial owner of a majority shareholding in the company.  In about November 2004, eBiz acquired an e-commerce software known as “WebExpress” (“建網快車”).

2.  It is KC Lam’s case that WebExpress is a software which enables users to build their own websites easily and therefore facilitates them to build an online platform for their business to business services.  He saw the potential in the software.  It was his plan to launch the software in Mainland China, targeting in particular the small and medium enterprises market which was largely untapped at the time.  In order to carry out the plan, KC Lam required funding and he intended to seek an IPO listing of eBiz.  As part of that effort, in about mid-2006, he enlisted the assistance of Mr Yue Yew Meng, the 3^rd defendant, for identifying and introducing potential investors in Singapore to provide pre-IPO funding.  I shall call Yue by his English name “Desmond Yue”.  At that time, Desmond Yue was a remisier (a kind of stockbroking agent) working at OCBC Securities in Singapore.

3.  In the end, there were a total of 23 individuals from Singapore who decided to invest in the pre-IPO venture under a special structure.  Funds were raised in five rounds from November 2006 to April 2008 under this structure.  The investments were made by way of loans to eBiz which were backed by security in the form of car parks in Hong Kong owned by KC Lam, accompanied by an option to convert the loans into shares in eBiz.  I shall adopt the plaintiffs’ terminology and call it “the Investment Structure”.  The total amount invested under the Investment Structure was HK$40,930,000. 

4.  In July 2009, eBiz appointed Collins Stewart Pte Ltd (“Collins Stewart”), an investment bank, to act as its sponsor to seek a listing on the secondary board of the Singapore Stock Exchange known as the Catalist Board.  Shortly after that, all the 23 Singapore investors converted their loans into eBiz shares.  Subsequent to that, a number of them made further investments in eBiz by directly subscribing for its shares. 

5.  In 2011, the proposed IPO fell through.  All the money invested in eBiz was lost.  Out of the 23 Singapore investors, 11 of them commenced the present action against KC Lam, eBiz, Desmond Yue and Mr Lai Ming Kui Tommy claiming their lost investments.  The latter is the 2^nd defendant and I shall call him “Tommy Lai”.  He was a director of eBiz from April 2007 to July 2011.  He was also its Chief Financial Officer from August 2009 to August 2011.

6.  These 11 investors are the 1^st to 11^th plaintiffs.  Together, they are claiming the sum of HK$15,980,000 (representing the amounts they invested under the Investment Structure), and HK$7,836,058.38 and S$100,000 (representing their direct subscription monies).

7.  This is the trial of the action between the plaintiffs, KC Lam, eBiz and Tommy Lai.  Desmond Yue has not made an appearance in this action at all.  However, when I use the term “the defendants” in this judgment, I am still generally referring to all the four defendants, namely KC Lam, eBiz, Tommy Lai and Desmond Yue.

8.  The plaintiffs are represented by Mr Christopher Chain, SC, Ms Sharon Yuen and Mr Sim Jing En.  KC Lam and eBiz are represented by Mr Wong Yan Lung, SC and Mr Justin Lam.  Tommy Lai appears in person.

Brief introduction of the plaintiffs’ case

9.  The plaintiffs’ case is mounted solely in fraud.  They do not allege negligence or vicarious liability.  They say that they have been defrauded by the defendants who perpetrated a “Fraudulent Scheme” from June 2006 to October 2011.  They were induced by a series of “Fraudulent Misrepresentations” made by the defendants to make pre-IPO investments into eBiz.

10.  In the words of Mr Loke Chee Choong, the 4^th plaintiff:

“The Fraudulent Scheme carried out by the Defendants was essentially a single and seamless, continuous and extended “sales pitch” which lasted for the approximate 5 year period from June 2006 to October 2011.”

11.  The plaintiffs have pleaded seven Fraudulent Misrepresentations, which they call by the following names:

(1)  the Revenue Misrepresentation;

(2)  the Company Valuation Misrepresentation;

(3)  the High Profile Partners Misrepresentation;

(4)  the High Profile Investors Misrepresentation;

(5)  the KC Lam Credentials Misrepresentation;

(6)  the Car Park Security Misrepresentation; and

(7)  the IPO Prospects Misrepresentation.

12.  The plaintiffs say that the Fraudulent Misrepresentations were repeatedly made by the defendants and bolstered over time, applying what they describe as “the Indoctrination Method”.  Induced by the Fraudulent Misrepresentations, the plaintiffs made investments under the Investment Structure from June 2006 to April 2008.  These investments were packaged as a “low risk no lose” deal, as the risks ordinarily associated with a pre-IPO investment were practically removed by the provision of the car park security by KC Lam. 

13.  Then, in July and August 2009, by fraudulently representing to the plaintiffs that the IPO was scheduled to occur imminently (when it was not), the defendants induced the plaintiffs to release the car park security and convert the loans into shares in eBiz.  This has been pleaded as “the False IPO Notification”.  And this had the effect of unravelling the protection given under the Investment Structure, namely the car park security. This, the plaintiffs contend, exemplifies the defendants’ fraudulent intention.

14.  After that, the defendants continued to repeat, bolster and maintain the Fraudulent Misrepresentations.  Some of the plaintiffs were induced to subscribe for further shares in eBiz directly.

15.  The Fraudulent Scheme was eventually exposed in October 2011 after the failure of the IPO.

16.  The plaintiffs therefore say that they are victims of fraud.  They claim reliefs based on the Fraudulent Misrepresentations. While it is their case that some of the representations were personally made by one or two only of KC Lam, Desmond Yue and Tommy Lai (ie not all three of them), the plaintiffs contend, as their primary case, that the three of them (and eBiz) were acting in concert and pursuant to the common design of the Fraudulent Scheme, with KC Lam being the mastermind.  Hence, each of the defendants should be liable for all the plaintiffs’ losses flowing from the Fraudulent Misrepresentations on the basis of joint tortfeasorship: see, eg, SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd [2015] 4 HKLRD 517 at paras 169 to 171.  Alternatively, each of KC Lam and Tommy Lai should be liable for those Fraudulent Misrepresentations which were made personally by them respectively.

Brief introduction of KC Lam, eBiz and Tommy Lai’s cases

17.  KC Lam and eBiz deny that they were engaged in the alleged Fraudulent Scheme.  They deny that they made the alleged Fraudulent Misrepresentations, except the Company Valuation Misrepresentation, for which their position is that the representation was not false.  They say that WebExpress is a genuine product and the IPO project was bona fide. It eventually failed not because of the alleged fraud on their part but due to factors outside of their control.

18.  The present claim is thus a spurious claim by a minority of disgruntled investors seeking to recoup money lost in a “high risk and high return” pre-IPO investment in an emerging company.

19.  As for Tommy Lai, the plaintiffs’ case against him is that he made the Fraudulent Misrepresentations to the 1^st, 5^th and 7^th plaintiffs and, further, after he joined eBiz in April 2007, he was jointly involved in and responsible for conducting the Fraudulent Scheme.

20.  Tommy Lai denies making the alleged representations.  He also denies being part of the Fraudulent Scheme.  He says that the IPO exercise was genuine and one reason for its failure is that the IPO process had dragged on for too long and the pre-IPO funds dried up quickly in the process.

The evidence

21.  This action is fundamentally a factual dispute.

22.  The dispute primarily turns on what was said by KC Lam, Desmond Yue and Tommy Lai to the plaintiffs, both orally and in writing, from June 2006 to October 2011.  I shall refer to this five-year timeframe as “the material period”. 

23.  The legal principles on fraudulent misrepresentations are well-established.  The only matter which needs to be highlighted at the outset is that an allegation of fraud is a serious allegation.  The more serious the allegation, the more inherently improbable it must be regarded, and the more compelling and cogent evidence must be required, even though the standard of proof remains to be the civil standard of balance of probabilities: Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563.  In this action, the burden is on the plaintiffs to adduce compelling and cogent evidence to make out their case of fraud against each of KC Lam, eBiz and Tommy Lai.  At the same time, it should be recognised that direct evidence of fraud can be rare, and fraud can be proved by inferences of dishonesty which are properly grounded in primary facts: see, eg, Guangdong Shunde Zhanwei Trading Ltd v Sun Fung Timber Co Ltd [2022] 1 HKLRD 441, [2021] HKCFI 3823 at paras 39 to 40. 

24.  The factual disputes between the parties are stark.  The parties are putting forward opposite narratives in respect of the same subject matter.  Take the Revenue Misrepresentation as an illustration.  There is no dispute that eBiz had no significant revenue at all during the material period.  The plaintiffs’ case is that eBiz was sold to them as a valuable company which was already generating or would generate substantial revenue from already secured contracts.  On the other hand, KC Lam and eBiz’s case is that all along KC Lam made clear to the plaintiffs that eBiz was an IT start-up company without any track record of revenue and profit.

25.  The resolution of such factual disputes turns on the court’s assessment of the credibility of the parties and (in this case, to a lesser extent) their witnesses. 

26.  For the plaintiffs, all 11 of them testified at the trial.  Each has made a witness statement, which is followed by a supplemental witness statement made about two years and nine months later.  I highlight this now as one of the criticisms made against the plaintiffs is the apparent “escalation” of certain aspects of their evidence in the second round of witness statements in which they seemed to be able to recall more details of the same events than when they made the first statements. 

27.  The witness statement of the 4^th plaintiff serves as the master statement of all the plaintiffs, setting out the Fraudulent Scheme in detail while the other plaintiffs address their individual circumstances in their own statements.

28.  For KC Lam and eBiz, KC Lam himself testified. They also called four witnesses:

(1)  Professor Chen Kwan Yiu Edward – an independent non-executive director (“INED”) of eBiz from December 2009 to around 2011.  He gave evidence on what he knew about the business and financial condition of eBiz at the time.

(2)  Mr Ho Hau Wong – the eldest son of the late Dr Ho Tim, who was one of the earliest employees of Hang Seng Bank.  He gave evidence that he subscribed for 6.38% of shares in eBiz and at that time he understood that his investment carried high risk and potentially high return.

(3)  Mr Lee Yat Lung Andrew – the Commercial Director of Hutchison Telecommunications Hong Kong Holdings Ltd from around 2005 to around 2013.  He spoke about a collaboration agreement which was entered into between Hutchison Global Communications Ltd (“Hutchison GCL”) and eBiz in July 2010.  He said that Hutchison GCL’s decision to partner with eBiz was based on the latter’s merits despite it being an IT start-up.

(4)  Mr Yan Chung Chee Keith – he is the founder and managing director of Grant Sherman Appraisals Ltd, a valuation firm.  Grant Sherman issued two reports in respect of eBiz, which are the subject matter of the Company Valuation Misrepresentation.  He spoke about the preparation and contents of the reports.

29.  As for Tommy Lai, he testified at trial and called no other witness.

30.  In terms of documentary evidence, there is before the court a mass of written documents which were generated during the material period.  Amongst them, there are a number of key documents which the plaintiffs say show that the Fraudulent Misrepresentations had been made.  It will be necessary to identify them one by one below.  They are mainly presentation materials shown to the plaintiffs and emails sent by Desmond Yue to some of them.  In this judgment, I shall call them “the key documents concerning the Fraudulent Misrepresentations”.  On the other hand, KC Lam and eBiz rely on some other documents which they say contradict the plaintiffs’ case of fraud.  One example is eBiz’s financial statements which, they say, were sent to the plaintiffs and showed its true financial condition (namely, no significant revenue).  I will have to identify these other documents one by one below.

31.  There is no dispute as to the authenticity of the documents disclosed in this action.  One of the material factual disputes over these documents is whether some of them were in fact shown or given to, and read by, the plaintiffs.  Once that dispute is resolved, the documents which are found to have been shown, given or read would be contemporaneous documents against which the parties’ cases can be usefully tested. 

32.  Lastly, on evidence, there is a single joint expert report on the valuation of 15 of the 20 car parks which were put up as security under the Investment Structure.  The expert came up with a total valuation of HK$23,630,000 as of October 2006.  This figure would be relevant to the Car Park Security Misrepresentation. 

Procedural history

33.  There are two matters which I would like to highlight as regards the procedural history of this action.  The first relates to Desmond Yue.  The second concerns the plaintiffs’ pleadings.

34.  Desmond Yue has not participated in this action at all.  Interlocutory judgment was entered against him in default in July 2013. No claim for damages is being pursued against him at trial.

35.  According to the plaintiffs, after the exposure of the Fraudulent Scheme in October 2011, they obtained from Desmond Yue two large bags of documents concerning eBiz.  But shortly after that, he absconded and disappeared.  By the time the action was commenced in September 2012, the plaintiffs were no longer able to contact him.

36.  It is KC Lam and eBiz’s case that Desmond Yue simply disappeared in about October 2011.  According to KC Lam, Desmond Yue passed away several years ago.

37.  While he is absent in the present action, Desmond Yue features prominently in the evidence.  It is common ground that there were from time to time face-to-face meetings between KC Lam, Desmond Yue and the plaintiffs, whether individually or in groups, during the material period.  On many other occasions, it was primarily Desmond Yue who communicated with the plaintiffs.  And when it comes to written communications, it would be Desmond Yue who directly wrote to the plaintiffs, eg, via emails (sometimes copying KC Lam).  This therefore raises the question as to whether the documents which were distributed by Desmond Yue to the plaintiffs can be attributed to KC Lam in support of the plaintiffs’ claims in the sense that the plaintiffs can rely on these documents as part of the alleged representations made by KC Lam.  I shall refer to this issue as “the attribution point”.

38.  The second matter which I would point out at the beginning is the multiple versions of pleadings filed by the plaintiffs in this action.  One of the main criticisms made by KC Lam and eBiz against the plaintiffs’ case is that it has undergone “sea changes” or “fundamental shifting” throughout these proceedings.  That can be seen, KC Lam and eBiz contend, from the contradictions and inconsistencies revealed by the different versions of the plaintiffs’ pleadings.

39.  There are in total four versions of each of the statement of claim and the reply (in respect of the defence of KC Lam and eBiz). The first statement of claim was made when the action was commenced in 2012. Both that pleading and the corresponding reply were prepared by solicitors.  In 2015, leave was granted for the plaintiffs to replace the entire statement of claim by a new version, which was settled by counsel.  That version was later amended in 2018.  It was further amended in 2020.  In the last round of amendment, the main change was the introduction of the Revenue Misrepresentation for the first time.  In this judgment, I shall refer to the statement of claim filed in 2012 and the reply filed in early 2013 as “the original statement of claim” and “the original reply”, respectively, and “the original pleadings”, collectively.

40.  The credibility of the plaintiffs’ case will be assessed by, among other things, the internal consistency (or inconsistency) as disclosed by the different versions of their pleadings.

Structure of this judgment

41.  In view of the large number of parties and related entities involved and the long time span over which the material events took place, I would first give an introduction of the individuals and entities who feature in the evidence before setting out the parties’ respective cases.

42.  As will be seen below, there is one pleading point concerning the Company Valuation Misrepresentation which needs to be disposed of before I move on to resolve the factual disputes.

DRAMATIS PERSONAE

43.  Some of the information relating to the background of the parties set out below are common ground and taken from the Agreed Documents Bundle lodged with the court in advance of the trial.  Some other information is not admitted by the other side.  One example would be the personal details pertaining to the individual plaintiffs.  While such information is not admitted by KC Lam, eBiz or Tommy Lai, I would accept them as part of the background facts in this case.  One example is the education level and the work experiences of the plaintiffs.  Another example is how they got to be introduced to the investment opportunity in eBiz in the first place. Some of them say that they knew about it through Desmond Yue, who was their remisier at OCBC Securities at the time.  Others say that they were introduced by colleagues of Desmond Yue, who were their remisiers at OCBC Securities or their friends.  The two remisiers who feature in the evidence are Mr Justin Lye and Mr Philip Ng.

The plaintiffs

44.  The 1^st to 11^th plaintiffs are residents of Singapore.

45.  The 1^st plaintiff, Ms Christine Ruth Ong Chai Hoon, is educated to a tertiary level.  At the material time, she worked as a matrimonial lawyer.  She invested in eBiz both under the Investment Structure and later by directly subscribing for its shares.  Her first investment was made in April 2007.  Her investments amounted to HK$529,975 in total.  She was introduced to Desmond Yue by Justin Lye.

46.  The 2^nd plaintiff, Mr Koh Kok Leong, is educated up to secondary school level.  At the material time, he was a director in a self-owned company carrying on the business of scaffolding works.  He invested in eBiz under the Investment Structure only.  His first investment was made in November 2006.  His investments amounted to HK$2,130,000 in total.  He was introduced to Desmond Yue and KC Lam by Philip Ng.

47.  The 3^rd plaintiff, Ms Koh Yew Choo, is educated up to secondary school GCE O-level.  At the material time, she ran her own business in recycling scrap metals.  She was also involved in the running of a food court business.  She invested in eBiz under the Investment Structure only.  Her first investment was made in November 2006.  Her investments amounted to HK$2,800,000 in total.  She was introduced to the investment by Desmond Yue.

48.  The 4^th plaintiff is educated to a tertiary level with a Master of Business Administration.  At the material time, he was employed in a senior management role of a multinational corporation in Singapore involved in the construction chemical business.  In 2007, he was posted to Shanghai by his company.  He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares.  His first investment was made in November 2006.  His investments amounted to HK$1,814,459 and S$100,000.  He was introduced to Desmond Yue by Philip Ng, who was his ex-schoolmate and remisier.

49.  The 5^th plaintiff, Mr Tan Eng Lee, is educated to secondary school level.  Later, he obtained a part-time diploma in electrical installation and control and further obtained a Master of Business Administration and Business Studies in Chinese Media.  At the material time, he ran a business of electrical installation and control for commercial and industrial project as a subcontractor.  He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares.  His first investment was made in February 2008.  His investments amounted to HK$6,928,874.  He was introduced to Desmond Yue by Justin Lye.

50.  The 6^th plaintiff, Mr Tan Eu Yong, is educated to Cambridge O-level.  At the material time, he had been running his own business of recycling, buying and selling scrap metals for more than 20 years.  He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares.  His first investment was made in November 2006.  His total investments amounted to HK$1,019,901.  He was introduced to the investment opportunity by Desmond Yue.

51.  The 7^th plaintiff, Mr Tan Geu Chuan, is educated to a tertiary level with a Bachelor of Science degree.  At the material time, he was the owner of a company which supplied special chemicals to the electronic industry for the production of semi-conductor and circuit boards before his retirement in 2008.  He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares.  His first investment was made in April 2007.  His total investments amounted to HK$2,842,848.  He was introduced to Desmond Yue by Philip Ng.

52.  The 8^th plaintiff, Mr Tan Ong Huat, is educated to A-level in secondary school.  At the material time, he was employed as a director of a Singaporean civil engineering and construction company.  He made only one investment in eBiz, which was made under the Investment Structure in April 2007.  The amount was HK$500,000.  He was introduced to Desmond Yue by the 2^nd plaintiff.

53.  The 9^th plaintiff, Ms Tan Wan Li, is educated to a tertiary level with a postgraduate diploma in Strategic IT Business and Information.  At the material time, she was employed as a professional services director in an IT company in Singapore, which carried on the business of software development for the logistics industry in relation to custom declarations.  She retired towards the end of 2006.  She invested in eBiz under the Investment Structure only.  Her first investment was made in November 2006.  Her investments amounted to HK$1,750,000 in total.  She was introduced to the investment opportunity by Desmond Yue.

54.  The 10^th plaintiff, Mr Yeo Boon Leong, is educated to GCE A-level.  At the material time, he was the managing director of a company carrying out the business of supply and rental of photocopying machines.  He made only one investment in eBiz, which was made under the Investment Structure in October 2006.  He invested a sum of HK$1,000,000.  He was introduced to the investment opportunity by Desmond Yue, who was not only his remisier at OCBC Securities but also a personal friend whom he had known since their army days.

55.  The 11^th plaintiff, Mr Goh King Hiong, is educated to a tertiary level with a diploma in engineering and a degree in economics.  At the material time, he was a service manager in an air-conditioning company in Singapore.  He made only one investment in eBiz, which was made under the Investment Structure in February 2008.  He invested the sum of HK$2,500,000.  He was introduced to Desmond Yue by Justin Lye, a mutual friend.

56.  It is the plaintiffs’ case that they largely did not know each other prior to the eBiz investment.  There is however evidence from the plaintiffs’ oral testimony that the 2^nd, 4^th and 7^th plaintiffs were acquaintances before the investments took place.  However, I do not consider that as particularly material in the evaluation of the credibility of the evidence.

57.  The above sets out the personal background of the plaintiffs, save their investment experiences prior to the material period. That would be a matter generally privy to the individual plaintiffs.  KC Lam, eBiz and Tommy Lai would have no personal knowledge of that.  However, I should say at once that the plaintiffs’ prior investment experiences is a matter which is material in at least two ways. 

58.  First, their experiences would have a bearing on the level of expertise they had in financial investments and their risk appetites.  This would become relevant when the court evaluates the inherent likelihood of their factual case concerning how they perceived the risks associated with the pre-IPO investments in eBiz. 

59.  Secondly, it is well-established that where there is a dispute as to the meaning conveyed by a representation, the court interprets the relevant words or conduct using an objective approach, viewing the communication from the perspective of a reasonable person in the position of the representee.  The test is whether (1) the words or conduct in fact led the representee to believe the alleged false fact, and (2) it was reasonable for the representee to believe it from the words or conduct as he perceived them: see, eg, Joytex Development Ltd v Super Homes Ltd [2018] HKCFI 2286 at para 77(2).  Hence, in the present case, the characteristics of the plaintiffs, including their level of sophistication, will become relevant and material when the court considers what meaning the alleged representations had conveyed to them and whether they in fact believed in the alleged representations.

60.  I shall come back to the prior investment experiences of the plaintiffs when I set out their individual cases below.

The defendants

61.  I now introduce the individuals or entities associated with the defendants. 

62.  KC Lam was the Chairman and Chief Executive Officer of eBiz during the material period (with the exception of a few months in 2011).  Sun Dynamic Ltd and Strong Man Investment Ltd were two of his corporate vehicles, of which he was director and majority shareholder. Sun Dynamic was designated as the borrower in the Investment Structure who received investment monies (indirectly) from the Singapore investors.  Strong Man was the legal owner of the car parks who were put up as security under the Investment Structure.

63.  During the material period, eBiz had two wholly-owned subsidiaries in the Mainland, namely Nanjing eBizAnywhere Technologies Ltd (“eBiz Nanjing”) and Beijing eBizAnywhere Technologies Ltd (“eBiz Beijing”). They were later acquired by KC Lam in around 2011.

64.  Mr Harry Tse was the Chief Operating Officer of eBiz.  (His exact title is not agreed but nothing turns on it.)  He features in some of the contemporaneous emails.  As mentioned above, eBiz acquired the WebExpress software in 2004.  Harry Tse was a majority shareholder and director of the company who originally owned the software.

65.  During the period from late 2008 to 2011, the following four individuals had at various times acted as INEDs of eBiz.  Prof Edward Chen was one of them.  The other three were Mr Leong Mun Wai, Mr Loh Weng Whye and Dr Lee George Lam.

66.  Deloitte Touche Tohmatsu was the auditor of eBiz during the material period.  It prepared its audited financial statements covering the period from its year of incorporation to the end of 2010.  The first audited financial statements covered the period from 11 August 2004 to 31 December 2005 and was dated 31 July 2006.  This set of audited statements assumes significance in the case of KC Lam and eBiz.  I shall refer to it as “the 2005 audited statements” below.

67.  Tommy Lai is a certified public accountant in Hong Kong.  He was appointed as a director and Chief Executive Officer of eBiz in April 2007.  He was appointed as the Chief Financial Officer in August 2009. He resigned as a director in July 2011.  He resigned from the position of Chief Financial Officer with effect from August 2011.  Prior to joining eBiz, he was a director of a company called Full Star Consultants Ltd.  That company provided valuation services.  Relevantly, it provided a valuation of 15 car parks owned by KC Lam, which formed part of the security under the Investment Structure, at HK$25,968,000 by a report dated 19 October 2006.

68.  Desmond Yue was a remisier at OCBC Securities whose clients included the 3^rd, 6^th, 9^th and 10^th plaintiffs.  He was appointed an adviser of eBiz in May 2006. He was appointed as the general manager and Vice Chairman of eBiz in January 2009.  He was a director of eBiz from June to October 2011.

Entities involved in the Investment Structure

69.  From November 2006 to April 2008, the Singapore investors invested in eBiz under the Investment Structure in five rounds.  In each round, an offshore special purpose vehicle (“SPV”) was set up into which the investors would pay their monies.  In exchange, each investor would receive a corresponding shareholding in the SPV proportionate to the sum of his or her investment.  The SPV then entered into a loan agreement as lender with Sun Dynamic as borrower (each, a “Loan Agreement”).  Strong Man was a party to the Loan Agreement as a guarantor in respect of Sun Dynamic’s obligations.  It was also the entity which put up 20 car parks in Bijou Court in Hong Kong as security in favour of the SPVs. 

70.  The 5 SPVs are (with the dates of the investments stated in brackets):

(1)  Ocean Gate Ltd (November 2006);

(2)  Radiant Sun Ltd (April 2007);

(3)  Top Gain Pacific Ltd (September 2007);

(4)  Liberty Star Holdings Ltd (February 2008); and

(5)  Kingston Profit Ltd (April 2008).

71.  In the Investment Structure, Preston Gates and Ellis acted as eBiz’s corporate lawyer.  The law firm also acted as the legal representative of Sun Dynamic.

72.  UniLegal LLC, a law firm in Singapore, was the legal representative of the SPVs.

Entities involved in the IPO exercise

73.  The evidence before the court shows that Catalist, a secondary board on the Singapore Stock Exchange, was launched in late 2007 and ten “full sponsors” and six “continuing sponsors”were approved in early 2008.  For a company wishing to be listed on the board, it would need to appoint a full sponsor in its application and after it is listed, it would need to appoint a continuing sponsor.

74.  In August 2008, Stamford Law Corporation, one of the six approved continuing sponsors, was appointed as eBiz’s legal representatives in Singapore in respect of its proposed listing on Catalist.

75.  In July 2009, eBiz appointed Collins Stewart, one of the ten approved full sponsors, in respect of its proposed listing on Catalist.

76.  The evidence shows that before the appointment of Collins Stewart, in the course of 2008, eBiz had engaged the following professional parties in respect of the proposed IPO:

(1)  Celestial Capital Ltd – it was appointed as eBiz’s financial advisor for preparing a cash flow forecast for valuation purposes; and

(2)  MacQuarie Capital Advisers Ltd – it was a business consultancy firm engaged by eBiz to provide an IPO feasibility study report.

Entities featuring in the Revenue Misrepresentation

77.  The following entities feature in the Revenue Misrepresentation:

(1)  Digital China Holdings Ltd – a company listed on the Main Board of the Hong Kong Stock Exchange;

(2)  Lenovo Group Ltd – a company listed on the Main Board of the Hong Kong Stock Exchange;

(3)  The China Telecom group; and

(4)  China Council for Promotion of International Trades (“CCPIT”) – a national foreign trade investment promotion agency founded by the Mainland government in 1952.

Entities featuring in the Company Valuation Misrepresentation

78.  The Company Valuation Misrepresentation concerns three reports.

79.  The first report is a report made by BI Appraisals Ltd and dated 24 November 2000, which valued eBiz at HK$857,000,000 as of 31 October 2004 (“the BI Appraisals report”). 

80.  The second report is a report made by Grant Sherman and dated 25 June 2008, which valued eBiz at RMB2,117,000,000 as of 31 May 2008 (“the first Grant Sherman report”). 

81.  The third report is a report also made by Grant Sherman and dated 29 October 2010, which valued eBiz at RMB1,459,000,000 as of 15 October 2010 (“the second Grant Sherman report”).

82.  Keith Yan, one of the witnesses of KC Lam and eBiz, is the managing director of Grant Sherman.  He was in charge of preparing the two Grant Sherman reports. 

Entities featuring in the High Profile Partners Misrepresentation

83.  As confirmed in the plaintiffs’ written closing submissions, the High Profile Partners Misrepresentation concerns the following individuals or entities:

(1)  the Temasek group – a group of investment companies owned by the Government of Singapore;

(2)  the Malaysia Telecom group; and

(3)  the Hutchison group.

Entities featuring in the High Profile Investors Misrepresentation

84.  Also, as confirmed in the plaintiffs’ written closing submissions, the High Profile Investors Misrepresentation concerns the following individuals or entities:

(1)  Mr Cheng Yu Tung, a well-known Hong Kong tycoon;

(2)  Mr Li Ka Shing, a well-known Hong Kong tycoon;

(3)  a French telecommunications giant;

(4)  the Hutchison group; and

(5)  a Malaysian blue chip company.

Entities featuring in the KC Lam Credentials Misrepresentation

85.  The KC Lam Credentials Misrepresentation revolves around a company called Ninetowns Digital World Trade Holdings Ltd (“Ninetowns”), a start-up software company listed on the NASDAQ Stock Market in 2004.

THE PLAINTIFFS’ CASE

86.  In a nutshell, the plaintiffs’ case is that the defendants made the Fraudulent Misrepresentations during the material period for the purpose of inducing them to invest in eBiz.  In the process, they acted in concert and pursuant to the common design of the Fraudulent Scheme. 

An outline

87.  In this section, I shall narrate the plaintiffs’ case primarily with reference to each of the seven alleged representations.  In order to understand the context in which they were made, however, it is necessary to first give a chronological account of the events from the time when the plaintiffs were introduced to the investment opportunity up to the time when the False IPO Notification, as alleged, took place in July and August 2009.  Within this account, I shall set out the terms of the Investment Structure in detail as they are material to the plaintiffs’ contention that the investment in eBiz was sold to them as a “low risk no lose” deal.  The terms are not controversial as they are documented in the legal agreements signed at the time, which is not subject to any challenge.

88.  Against the backdrop of that account, I shall set out how each of the Fraudulent Misrepresentations was made, as pleaded and (in some cases) as narrowed down in the course of the trial, and the material evidence in support in each case.  It will be recalled that the Fraudulent Misrepresentations are said to have been made and repeated throughout the material period.  I shall therefore relate the relevant evidence which spans across the entire period in this part of the judgment.  I would pause here to say that the primary factual dispute is whether (with the exception of the Company Valuation Misrepresentation) the alleged representations were indeed made, rather than whether they were false.

89.  That will be followed by the plaintiffs’ account of:

(1)  the events surrounding the False IPO Notification;

(2)  the IPO exercise and further direct subscriptions;

(3)  the exposure of the Fraudulent Scheme; and

(4)  how the False IPO Notification exemplifies the fraudulent intent of the defendants.

90.  I shall lastly set out the prior investment experiences of the plaintiffs.

91.  The above will be done with reference to the plaintiffs’ case against KC Lam and eBiz first.  Their case against Tommy Lai will be dealt with next in a separate subsection.

92.  As to quantum of the plaintiffs’ claims, there is no dispute between the parties as the amounts invested and lost by each of the plaintiffs are common ground.

The plaintiffs’ case is narrated with reference to the Fraudulent Misrepresentations, rather than to the plaintiffs

93.  The plaintiffs made their investments at different times.  Many of them invested more than once.  In their pleadings, each of the plaintiffs’ claims has been specifically formulated in a table format.  In respect of each investment made by each plaintiff, there is an entry identifying the misrepresentation(s) which induced the investment, and the defendant(s) who made the misrepresentation(s). 

94.  Take the 1^st plaintiff’s case as an illustration.  She made three investments in total.  First, she invested HK$400,000 in Radiant Sun in early 2007.  It is pleaded that she was induced to make that investment by all the seven representations made by KC Lam and Desmond Yue. Second, she directly subscribed for shares by paying HK$128,755 in October 2009.  Third, she directly subscribed for further shares by paying HK$1,220 in April 2011.  It is pleaded that she was induced to make the second and third investments by all the seven representations except the Revenue Misrepresentation, and that the six representations were made by all the four defendants. 

95.  In terms of evidence, in her written statements, the 1^st plaintiff spoke about the meetings she had with Desmond Yue, KC Lam and Tommy Lai, her telephone calls with Desmond Yue and the emails sent by Desmond Yue to her during the material period.  On those occasions, the defendants would persuade her to invest in eBiz by making oral representations about the business or by sending or showing her various documents about the company.  For example, she spoke about a group meeting which she had with Desmond Yue and Justin Lye and other people in a pub called Wu Bar in Circular Road in Singapore in July 2006.  Desmond Yue made various statements about eBiz.  Among the many things which he said in his “sales pitch” was that under the management of KC Lam, eBiz was planning to be listed very soon, with very good prospects of success.  That would be her evidence in support of her case of the IPO Prospects Misrepresentation in relation to her investment in Radiant Sun. 

96.  Further, the 1^st plaintiff spoke about the numerous meetings with KC Lam and Desmond Yue between mid-2007 and August 2009 in which they would repeat their representations, including continuing their narrative of how stellar eBiz’s existing business and the IPO progress were going.  Together with what Desmond Yue said in Wu Bar in July 2006, what was said in these subsequent meetings forms the 1^st plaintiff’s evidence in support of her case of the IPO Prospects Misrepresentation in relation to her direct subscriptions in October 2009 and April 2011.

97.  When evaluating the plaintiffs’ case, I shall take the Fraudulent Misrepresentations as the primary reference points.  In other words, the plaintiffs’ case will be narrated with reference to each of the Fraudulent Misrepresentations and in that narrative, I shall set forth the material evidence of those plaintiffs who were allegedly induced by the representation in question.  I will not separately set out the case of each individual plaintiff in this judgment.  And I want to explain why I adopt this approach. 

98.  In theory, when evaluating the plaintiffs’ case,as a matter of analysis, the court should consider whether in respect of each investment made by a particular plaintiff, the relevant misrepresentation was made.  This is because each such investment is said to have been induced by the particular misrepresentation(s) in question and by a particular defendant or defendants.  If the case is made out, the court would award damages to that plaintiff in respect of that particular investment.  The exercise will have to be repeated for each of the other investments of the same plaintiff and of the other plaintiffs.  It may be said that since that is how damages will be awarded, the judgment should be organised that way.

99.  However, I do not think that it is particularly helpful to adopt that methodology.  The plaintiffs’ case is that the Fraudulent Misrepresentations were made, repeated and bolstered during the material period.  If we take the above evidence of the 1^st plaintiff as an example, it is unlikely to be the case that the court will find that what is alleged to have been said to her in Wu Bar in July 2006 (which goes to support the IPO Prospects Misrepresentation) was indeed said but similar things which are alleged to have been said later from mid-2007 to August 2009 (which goes to support the same misrepresentation) were indeed not said.  Hence, generally speaking, setting out each plaintiff’s case in full would not be particularly helpful in terms of evaluating the credibility of his or her evidence.

100.  I should also note here that it is in fact the plaintiffs’ case, as stated in the 4^th plaintiff’s witness statement, that the substance and essence of the Fraudulent Misrepresentations that were made to each of them are the same.

101.  As a separate point, to spell out the case of each of the plaintiffs by going through all the instances of misrepresentations which apply to him or her would add to the length of this judgment very considerably.  The evidence from the 1^st plaintiff which I have set out above is only a small part of her written evidence.  Other plaintiffs’ witness statements contain evidence of similar length.

102.  I shall therefore organise the plaintiffs’ case with reference to each of the Fraudulent Misrepresentations.  I shall first set out the key documents concerning the Fraudulent Misrepresentations.  I shall then set out what is alleged to have been said orally to the plaintiffs by reciting the evidence of some (but not all) of them which I consider to be more material and more representative of the misrepresentation in question. 

103.  I should record here that counsel for the plaintiffs and counsel for KC Lam and eBiz have both lodged very detailed closing submissions discussing the plaintiffs’ case by including two parts – one part discussing the case with reference to each of the Fraudulent Misrepresentations and another part discussing the case with reference to each of the plaintiffs.  I do not propose to do the same for the reasons just given.

104.  Lastly, I have set out the dates and amounts of the 1^st plaintiff’s investments in the example above.  But I do not propose to do the same in respect of the other plaintiffs because, first, there is no dispute as to these details; and, secondly, as will be seen below, the plaintiffs’ claims will be dismissed in toto and no award of damages will be made.  Hence the details regarding the investments would not be of any importance.  For the same reasons, I shall not set out the details as to which investment was induced by what misrepresentation.

From around June 2006 to July 2009

105.  The plaintiffs were introduced to KC Lam and eBiz at different times.  The earliest ones were introduced in June and July 2006 whereas the latest ones in December 2007 and January 2008.  The common thread connecting them was Desmond Yue.

106.  Desmond Yue had been a remisier at OCBC Securities, which is the stockbroking division of OCBC Bank, a large and highly reputable consumer bank headquartered in Singapore.  Some of the plaintiffs had in fact been his longstanding clients.  They included the 3^rd, 6^th, 9^th and 10^th plaintiffs.  Desmond Yue also approached his colleagues, Justin Lye and Philip Ng, to introduce potential investors to him.  At his urging, Justin Lye introduced to Desmond Yue the 1^st, 5^th and 11^th plaintiffs, and Philip Ng introduced the 2^nd, 4^th and 7^th plaintiffs. The 8^th plaintiff was introduced to Desmond Yue by the 2^nd plaintiff.

107.  Desmond Yue (and later KC Lam and Tommy Lai) would meet up with the plaintiffs and other Singapore investors at different times, sometimes in groups (of various combinations) and other times with some of them individually.  The investors would be shown or sent (by emails, again, sometimes in group emails and other times individual emails) documents relating to the investment opportunity.  Telephone calls would also be made to them.

108.  While, understandably, the plaintiffs cannot now recall the exact words used by the defendants on the many occasions when they spoke or met, what the plaintiffs have uniformly described in this action is that the defendants would engage in a relentless “sales pitch” introducing to each of them the “great investment opportunity” of investing in eBiz by making, repeating, expanding, refining, and bolstering the Fraudulent Misrepresentations on almost every occasion of contact, and selling the investment as a “low risk no lose” deal.  When doing so, the defendants acted in a concerted, coordinated, and systematic manner.  It was a single and seamless, continuous and extended sales pitch which lasted for approximately five years.  That reflects a clearly defined and well planned modus operandi in carrying out the Fraudulent Scheme.  That has been referred to by the plaintiffs as “the Indoctrination Method”.  That method was seamlessly and consistently applied to each of them even after they had been induced to invest in the Fraudulent Scheme so as to maintain it.

109.  In the process, the credentials of KC Lam were frequently emphasised by the defendants.  Desmond Yue would in particular emphasise that KC Lam was a wildly successful businessman, well-acquainted with business tycoons, government officials, politicians, celebrities, and the rich and famous.  It was said that he was an investment wizard with many personal contacts and friends in high places, particularly in Mainland China.  Also, KC Lam was described as a person of strong Confucian values.  KC Lam himself always appeared well-dressed and composed, and he came across as well-spoken, charming and charismatic.  Desmond Yue would from time to time send emails to the plaintiffs with information and photographs of KC Lam meeting with public figures, government officials and business leaders.  He would also email them with information about alleged awards and appointments received by KC Lam, information about his charity fund and magazine articles in which KC Lam was interviewed.

110.  The plaintiffs say that this portrayal of KC Lam helped the defendants carry out the Fraudulent Scheme.  With such impressive credentials, the plaintiffs easily fell into the trap of trusting everything that was said by KC Lam to them.  When some of the plaintiffs wondered why the defendants would offer such an attractive investment to them, the defendants’ answer was that because KC Lam was already so successful and wealthy, he was willing to offer these attractive terms in order to build more contacts and make more friends in Singapore.  The plaintiffs did not find this answer incredulous because of everything that had already been told to them of KC Lam’s wealth, success, generosity, and Confucian beliefs.

111.  In summary, what happened was:

(1)  The effect and substance of the Fraudulent Misrepresentations was to falsely portray that eBiz was wildly successful and highly valuable, fairly and independently valued to be a billion dollar company, and on the brink of an IPO.

(2)  The investments were, objectively speaking, backed up by the security offered under the Investment Structure.  The plaintiffs were therefore sold with an investment opportunity with minimal risk.

(3)  Believing in the Fraudulent Misrepresentations, the plaintiffs made their investments.

(4)  In reality, eBiz never had any significant business, sales, revenue, or income at any point in time.  That has been referred to in the pleadings as “the No Revenue Reality”.

(5)  The No Revenue Reality was of course not known to the plaintiffs.  At the time, they were led to believe in a markedly different picture that eBiz was hugely valuable because it had thriving and rapidly growing sales and revenue.

(6)  It was not until the Fraudulent Scheme began unravelling in 2011 that the plaintiffs became aware of the No Revenue Reality and the falsity of the Fraudulent Misrepresentations.

112.  While the plaintiffs rely on a number of documents as examples of the Fraudulent Misrepresentations, they say that these examples are merely the corroborative tip of the iceberg.  Their case is that the defendants most frequently made and repeated the Fraudulent Misrepresentations orally over telephone calls, individual meetings, and group meetings.

113.  To give the false impression of the “success” of eBiz and KC Lam, many of the group meetings took place in lunch and dinner gatherings held at high-end luxury establishments in Singapore, such as the Fullerton Hotel (five-star), the Executive Lounge of the Carlton Hotel (4.5-star), and the Pine Tree Club, an exclusive and prestigious private members club, now renamed as The Pines.

114.  There was, in particular, a group trip to Beijing arranged by the defendants in about June 2007.  The 1^st, 2^nd, 3^rd, 4^th, 8^th, 9^th and 10^th plaintiffs, together with other investors, visited eBiz’s Beijing offices.  It was a three-day all-expenses-paid trip.  Tommy Lai was introduced as the Chief Financial Officer.  It was the occasion where some of the plaintiffs met Tommy Lai for the first time.  A presentation of the WebExpress software and eBiz’s business plan was given in very rosy terms, mainly by KC Lam and Tommy Lai.  The presentation repeated the Fraudulent Misrepresentations.  Harry Tse was briefly introduced as the “inventor” of the software but did not speak much. 

115.  The reaction was a bit mixed.  For instance, the 3^rd plaintiff thought that the scale of the Beijing office was quite small and she was not particularly impressed by the trip.  The 10^th plaintiff also formed a negative impression of the Beijing office due to its scale and organisation.  On the other hand, the 4^th plaintiff thought the presentation given by KC Lam and Tommy Lai sounded very convincing and impressive.

116.  In this action, the plaintiffs invite the court to look at the extensive contemporaneous documents, in particular emails generated during the material period.  They say that they are not only express examples of the defendants making and repeating the Fraudulent Misrepresentations, but they also fully corroborate the fact that defendants were making them to the plaintiffs orally in individual and group meetings.

117.  Due to the lapse of time, the plaintiffs have not been able to retrieve every single email that was sent to each of them.  For instance, the 8^th plaintiff says that he suffered a crash of his email server and as a result lost a vast majority of the emails and documents sent to him.  However, he says that the defendants sent identical or substantially similar emails and documents to the other plaintiffs, which he would rely on. 

118.  Out of all the plaintiffs, it would appear that the 6^th plaintiff has managed to retrieve the most email records. After the exposure of the Fraudulent Scheme in 2011, with the assistance of his daughter, he printed out and kept the various emails and attachments relevant to eBiz.  Among these emails, there were some sent to his personal email address.  It is a “hotmail” address, which I will not set out here but will refer to as “the 6^th plaintiff’s Hotmail address”.

119.  Separately, there were two group emailing lists created by Desmond Yue and the lists included the plaintiffs.  I shall simply call them “the group email addresses”.  However, the plaintiffs have made it clear in this action that these emails that they had been able to retrieve are unfortunately far from a complete and exhaustive record of all the emails sent during the material period.

120.  In addition to the emails, the plaintiffs rely on what I have called the key documents concerning the Fraudulent Misrepresentations.  They include:

(1)  a document entitled “General Information on Pre-IPO Investment” dated February 2006 and in bullet point format (“the General Information on Pre-IPO Investment”);

(2)  an undated promotional brochure of eBiz shown to the plaintiffs in around June 2006 (“the June 2006 Brochure”);

(3)  an undated promotional brochure of eBiz accompanied by a five-year financial forecast from 2006 to 2010 (“the eBiz Promotional Brochure”);

(4)  a document entitled “Key Points” in bullet point format shown to the plaintiffs in around June 2006 containing an overview of the investment (“the June 2006 Key Points 1”);

(5)  a document entitled “Convertible Loan Agreement – Key Points” in bullet point format shown to the plaintiffs in around June 2006 containing an overview of the investment (“the June 2006 Key Points 2”);

(6)  a document entitled “Info Memo Second and last Placements with Assets backing” dated January 2007 in bullet point format (“the January 2007 Info Memo”); and

(7)  undated Power Point slides of eBiz shown to the plaintiffs from sometime in 2010 onwards.

121.  It would be convenient to set out at this juncture some of the contents of the above key documents.

122.  The June 2006 Brochure contained the following passages:

“The Company has formulated its marketing strategy by forming partnerships with Digital China Holdings Limited (“Digital China”), China Internet Network Information Center (“CNNIC”), Lenovo Group, Ninetowns Digital World Trading Holding Ltd (“Ninetowns”) and Jardine One Solution (China) Limited (“JOS”) in developing comprehensive sales networks of the Software.

It is the strategy of the Company to engage Digital China as the sole agent in marketing the Microsoft version of the software whilst the remaining partners as agents in marketing the Linux version of the Software. Apart from the marketing role, all agents will take up responsibilities of the after-sales services and program training.

According to the estimate made by CCID Consulting Company Limited, which is listed on the Growth Enterprise Market of The Hong Kong Stock Exchange Limited and which provides research and consultancy services covering products market planning and market competition strategies, in September 2004, the total number of small to medium sized enterprises was approximately 34.56 millions of which only approximately 0.14 million have set up its website, whereas the market scale (in terms if monetary amount) of e-Commerce software for small and medium sized enterprises in China amounts to RMB 658,000,000 and out of which the demand for e-Commerce software generated by small and medium sized enterprises which have no website will be RMB 642,300,000.  In the light of the above data, it is estimated that by adopting effective and efficient marketing strategies, WebExpress Software will be able to increase its share in the market of e-Commerce software for small to medium sized enterprises.”

“eBizAnywhere is a HK $ 857,000,000.00 Company”

“We are in the preparation to list our Company in Nasdaq, Tokyo Stock Exchange, HKSE or SGX …… Cheers”

123.  The eBiz Promotional Brochure contained the following passages:

“The Company has formulated its marketing strategy by forming partnerships with Digital China Holdings Limited (“Digital China”), China Internet Network Network Information Center (“CNNIC”), Lenovo Group, Ninetowns Digital World Trading Holding Ltd (“Ninetowns”) and Jardine OneSolution (China) Limited (“JOS”) in developing comprehensive sales networks of the Software.”

“5. Agreement signed with Digital China

27 Oct 2005, eBizAnywhere Technologies Ltd signed Five (5) years Agency Agreement with Digital China (subsidiary company of the Legend Group, China). Under the Agreement, sales of the Software ‘WebExpress’ will reach RMB 100,000,000 per annum. The Profit will not less than RMB 40,000,000 for eBizAnywhere Technologies Ltd as the Company expects the market demand will be far more than the above mentioned. (Press Release, please refer www.eBizAnywhere.net)

On the other hand, the Company and Lenovo will jointly enter into the personal computer and notebook market. The ‘ Yang Tien ‘ Computer series of Lenovo will have 100,000 computers to package the Software ‘WebExpress’ for sales within a year. Having 5% customers select the package sales, 5,000 computers x RMB 2980 x 95%, there will be RMB 14 millions Sales for the Company.

6. Agreements to be signed with China Telecom

In China, other than commercial websites, the individual websites have increased rapidly in the recent years. And the new individual domain name policy will be announced shortly be the China Government to encourage more personal websites.

China Telecom and eBizAnywhere Technologies Ltd will co-operate, using ADSL as the IT entrance system to this new market. The new users are encouraged to download the software ‘ Website Express ‘ from the ISP for a free period, after this period, the users wish to continue the service, they need to purchase the Software.

China Telecom and the Company expect that there will be at least 200,000 new users per year.  China Telecom and the Company expects the sales to be RMB 200,000,000 per annum.”

124.  The June 2006 Key Points 1 read:

“Key Points

1) Rich & famous Shareholders

- Dr Lam Kin Chung (Harvard Fellow & Nanjing Hononary Citizen …)

- Hang Seng Bank founder family member

- HK listed Company, Nan Da Soft Technologies Ltd

- Others

2) 500 Millions RMB Contract on Hand

- Signed in Oct 2005

- More than 4,000 retail outlets are selling WebExpress Software

3) HK$857 Millions Dollars Company

- By B.I. Appraisals Limited

4) Company Evaluation at HK$200 Millions at this moment

- Far below HK$857 Millions Evaluation

- 1^st Placement Shares come with a Dollar to a Dollar NTA protection

- HK Assets as the collateral

- Guarantee Dividend of 5% before listing year

- Buy back from the 1^st placement shareholders at 15% premium, if the Company can’t list in 2008

5) The Company makes 1^st Placement Shares for not more than HK$23 mln

- The placement proceeds are mainly for acquisition of companies

6) Digital China is our China Distributor

- Member firm of Legend Group which purchased IBM PC Business last year

- Legend Group is the Top Company of China 500 Enterprises

- WebExpress Software package with Lenovo Computers for Sales

7) Company Management with the listing experience in Nasdaq, USA

- Ninetowns Technologies Ltd listed in 2004

8) Duplicate Ninetowns Company Business Model

- Cash Rich Business Model

9) Projected FY2006 with Profit After Tax at HK$28.6 mln (29.7 mln RMB)

- HK$34.7 mln in FY2007, HK$48.9 mln in FY2008 …

10) In Preparation to list in Nasdaq 2008

- HKSE, TSE or SGX”

125.  The June 2006 Key Points 2 read:

“Convertible Loan Agreement

Key Points

- The investors will get 5% financial incentive payment per year (Pro-rated per month)

- eBiz expects to be listed in US, London or Asia Stock markets or being acquired by the listed company in the above mentioned exchange before 2009

- without listing or being acquired before 2009, eBiz will buy back the Convertible Loan with 15% premium on top of the dividend paid, payable before 1^st April 2009

- This agreement comes with Asset Backup scheme, in the case that eBiz without any financial capacity to redeem the Convertible Loan, the investors can take over the assets or opt for another 2 more years extension for eBiz to be listed or being acquired.

- The conversion is based on 50% discount on IPO or acquisition price.

Attached Documents (Certified true copy)

- eBiz incorporation certificate and share holding structure

- Latest Auditor Report by reputable Audit Firm

- Financial Projection of FY 2006 up to FY 2010 with LOIs or Independent market report to justify the projection.

- Assets Document and Assignment or lien of the asset in favour of the Investors

- BI Appraisal Report

- International China Soft 2006 (Creativity Award Cert)

- China SME promotion Board Certification

- Digital China Agency Appointment Letter”

126.  The January 2007 Info Memo read:

“Info Memo

Second and last Placements with Assets backing

Jan 2007

• eBiz is the IP owner of WebExpress software which received two National outstanding Awards last year, please refer www.ebizanywhere.net

• For the past years, ebiz has spent more than HK$10mln to produce the software and by now, Software Sales in the market starting from Nov 2006

• As the sales just start in few months ago, the founder, Dr KC Lam offers personal assets to back-up all the investments.

• All the investments receive 5% coupon per year & for max 3 years

• Assets backing, Car Parks Title deeds are deposited in Singapore lawyer office for security

• In the case of IPO or RTO, the investors with the chances of making at least 100% ROI

• 2007, eBiz will own 50.4% stake in the IB2B Group which has JV with China Council for Promotion of International Trades & China Chamber of International Commerce – Ministry of Commerce

• IB2B Group scope of business including Exhibition Agencies, Web-Marketing with membership, Certification Agency, Web Sites Operators and producers for Exhibitors in China & overseas, the sales projection is not ready yet at this moment

• Auditor : Deloitte

• HK Corp Lawyer : Preston Gates LLC

• Singapore Administration Lawyer : UniLegal LLC

• Independent Consultant : Full Star Consultants limited”

127.  To complete the general picture concerning documents relied on by the plaintiffs, as mentioned above, there are also the two bags of documents left by Desmond Yue before he disappeared in 2011. 

The Investment Structure

128.  The sales pitch put forward by the defendants consisted of two components – first, the Fraudulent Misrepresentations and, second, the Investment Structure.  The latter in itself was in fact a genuine arrangement which offered protection to the investors in the form of the car park security.  But the defendants made use of it in tandem with the Fraudulent Misrepresentations in order to induce the plaintiffs’ investments. 

129.  There were five rounds of investment under the structure.  In each round, each investor would pay his investment money into a designated offshore SPV, arranged and set up by the defendants for that round, and would obtain a corresponding shareholding of that SPV proportionate to his investment. The SPV would then enter into the Loan Agreement with Sun Dynamic and Strong Man.

130.  The five Loan Agreements were in substantially identical terms.  Broadly:

(1)  The SPV would advance investment monies to Sun Dynamic as a loan.

(2)  The loan was to be repaid within three years.

(3)  Interest would accrue at an annual rate of 5%.

(4)  A premium of 15% would be payable on the final repayment date.  This, together with interest, would yield a return of 30% over three years.

(5)  The loans were secured in two ways.  The security comprised, first, a number of shares in eBiz owned by Sun Dynamic and, second, 20 car parks owned by Strong Man.  For the latter, specific car parks were earmarked to each of the five Loan Agreements.  Pursuant to the agreements, title deeds of the car parks were delivered to the SPVs.

(6)  The SPV had an option to convert the loan into eBiz shares in the event of an IPO, calculated according to a favourable formula.  Alternatively, the SPV could elect to demand repayment of the loan.

131.  The conversion mechanism was elaborately spelt out in the Loan Agreements:

(1)  If the IPO is to take place (which is referred to as a “Qualified Event”) before the scheduled repayment date, Sun Dynamic may give a written notice of that fact.  If the SPV elects to convert, it should give a “Conversion Notice” not later than 14 business days before the “Hearing Date”, which term is defined to mean the date scheduled for a review hearing to be conducted by the relevant stock exchange.  In other words, this contemplates the giving of the Conversion Notice only where an application was already submitted to, and was in the process of undergoing consideration by, the stock exchange.  This mechanism is set out in clause 5.01(a).

(2)  The Loan Agreement will be terminated on the date when the Conversion Notice is given. 

(3)  However, the binding effect of the Loan Agreement shall be revived as from the conversion date as if the Conversion Notice had not been given if the IPO does not occur as scheduled.  I shall call this “the revival clause”.  It means that upon revival, the SPV will once again be entitled to repayment of the loan.  This mechanism is set out in clause 5.04.

(4)  The SPV only needs to return the title deeds of the car parks to Strong Man in exchange for the conversion shares, which are to be transferred to the SPV within one month of the first day of listing.  This mechanism is set out in clause 5.03(c).

(5)  The combined effect of the above is that in the event that the SPV elects to convert, the car parks will not be released until the conversion shares are delivered after a successful IPO.  This is to cater for the situation where the IPO turns out to be unsuccessful, in which case the Loan Agreement will be revived, alongside which the car park security would come back in place, with the title deeds still in the hands of the SPV.

132.  In summary, the defendants was essentially selling a very attractive “no lose” deal to the plaintiffs.  It was “no lose” because of (1) the provision of the car parks as security, (2) the revival clause, and (3) the timing of the delivery of the title deeds of the car parks.

133.  The Loan Agreements were pre-prepared and pre-arranged by the defendants.  Each time, the defendants would inform the plaintiffs when the documentation was ready to be signed and, as instructed, the plaintiffs would attend the offices of UniLegal LLC, a Singaporean law firm arranged by the defendants, to sign the documents.

134.  In this action, the plaintiffs have repeatedly emphasised that it is not their case that the defendants lied about the terms of the Investment Structure.  There is nothing fraudulent about the structure when it is looked at in isolation.  They plaintiffs believe that the structure was deliberately designed by the defendants to appear legitimate on its face in order to make their sales pitch more attractive.  In other words, it was used as a complementary tool to strengthen the inducing effects of the Fraudulent Misrepresentations.

135.  In the oral testimony of some plaintiffs, it was in fact emphasised that because of how the Investment Structure worked, they considered that what they were doing was simply advancing “simple loans” to eBiz. 

136.  The existence of the Investment Structure is also the reason why the plaintiffs do not agree with KC Lam and eBiz’s characterisation of the pre-IPO investment as a high-risk investment.  Rather, they say that it is a practically risk-free investment under which the investors had watertight protections.

137.  I now turn to set out the plaintiffs’ case on each of the alleged misrepresentations.

The Revenue Misrepresentation

138.  The Revenue Misrepresentation is pleaded as follows – from 2006 onwards, eBiz will generate or has generated extensive sales and revenue from already secured contracts, eg revenue figures mentioned by the defendants include RMB100 million per annum and total RMB500 million.

139.  In gist, it is the plaintiffs’ case that eBiz was portrayed as a company that had generated or would as a matter of guaranteed certainty shortly generate extensive revenue, in the range of hundreds of millions pre-IPO pursuant to already signed or secured contracts with big conglomerates.  Given its impressive sales and revenue, eBiz was a company that could and was planning to list on main boards such as NASDAQ by 2008.

140.  The Revenue Misrepresentation is corroborated by the following documents shown or given by KC Lam and/or Desmond Yue:

141.  First, the June 2006 Brochure:

“Our Strategic Partners

The Company has formulated its marketing strategy by forming partnerships with Digital China Holdings Limited (“Digital China”), China Internet Network Information Center (“CNNIC”), Lenovo Group, Ninetowns Digital World Trading Holding Ltd (“Ninetowns”) and Jardine One Solution (China) Limited (“JOS”) in developing comprehensive sales networks of the Software.”

“eBizAnywhere is a HK $ 857,000,000.00 Company”

“We are in the preparation to list our Company in Nasdaq, Tokyo Stock Exchange, HKSE or SGX”

142.  Second, the eBiz Promotional Brochure:

“5. Agreement signed with Digital China

27 Oct 2005, eBizAnywhere Technologies Ltd signed Five (5) years Agency Agreement with Digital China (subsidiary company of the Legend Group, China). Under the Agreement, sales of the Software ‘WebExpress’ will reach RMB 100,000,000 per annum. The Profit will not less than RMB 40,000,000 for eBizAnywhere Technologies Ltd …

On the other hand, the Company and Lenovo will jointly enter into the personal computer and notebook market. The ‘ Yang Tien ‘ Computer series of Lenovo will have 100,000 computers to package the Software ‘WebExpress’ for sales within a year. Having 5% customers select the package sales, 5,000 computers x RMB 2980 x 95%, there will be RMB 14 millions Sales for the Company.

6. Agreements to be signed with China Telecom

…

China Telecom and the Company expect that there will be at least 200,000 new users per year.  China Telecom and the Company expects the sales to be RMB 200,000,000 per annum.”

143.  In the attached five-year financial forecast, annual sales were projected to be around RMB134 million for 2006, which increases year-on-year to around RMB 540 million for 2010.

144.  Third, the June 2006 Key Points 1:

“500 Millions RMB Contract on Hand

- Signed in Oct 2005

-  More than 4,000 retail outlets are selling WebExpress Software”

“Digital China is our China Distributor”

“Duplicate Ninetowns Company Business Model

- Cash Rich Business Model”

“Projected FY2006 with Profit After Tax at HK$28.6 mln (29.7 mln RMB)

- HK$34.7 mln in FY2007, HK$48.9 mln in FY2008”

145.  Fourth, the General Information on Pre-IPO Investment:

“Plan to list in Nasdaq (1st priority) by 2008, next choice is HKSE/SGX”

146.  Fifth, emails sent by Desmond Yue to the 6^th plaintiff in July and August 2006 making references to various stock exchanges: see the two emails reproduced in paras 184(1) and 234 below.

147.  Sixth, an email sent by Desmond Yue to the group email address on 23 January 2007 (which is referred to as “the January 2007 Sales Getting Strong Email”) read:

“eBiz Sales are getting strong, eBiz CEO will update you when we meet in Beijing, likely in March/April 2007”

148.  The above documents convey the following meanings:

(1)  eBiz had already signed agreements with Digital China, under which software sales were guaranteed to reach RMB100 million per annum.

(2)  eBiz had already secured a partnership with Lenovo as a matter of certainty, which would guarantee RMB14 million in sales.

(3)  eBiz had already secured an agreement with China Telecom as a matter of certainty, from which sales were expected to be RMB200 million per annum.

(4)  The sales of eBiz were “getting strong”.

(5)  The references to the major stock exchanges, in particular with NASDAQ stated to be the “1^st priority”, would lead a reasonable person to understand that eBiz was already earning substantial revenue so that it would be ready to be listed on those major exchanges (as opposed to secondary boards) by 2008. 

149.  The Revenue Misrepresentation was also made orally by the defendants.  For example, according to the 4^th plaintiff, at the Beijing meeting in about June 2007:

“KC Lam convincingly explained that the software allowed a company to easily set up a website; priced at RMB 1,000 and with eBiz having access to many thousands of companies through CCPIT, there would be enough users for the B2B portal to take off very quickly, and eBiz would earn hundreds of millions in RMB.”

“KC Lam clearly represented that eBiz was already generating significant revenue and will shortly generate even more substantial revenue (and not merely that it may potentially generate revenue in the future). In particular, KC Lam ... [g]ave an update that eBiz’s sales were growing …”

150.  Later, at meetings in Shanghai in early 2008, according to the 4^th plaintiff:

“[I]n early 2008, KC Lam told me that … [s]ales of eBiz were on the rise, as eBiz had been hugely successful in attracting local PRC companies in signing up to and using the WebExpress software.”

“KC Lam consistently stated, eBiz’s sales remained on the rise (and not merely that it may potentially generate revenue in the future).”

151.  The Revenue Misrepresentation was false for a number of reasons.

152.  First, the No Revenue Reality, which is undeniable. The total revenue for the financial years ending on 31 December 2006, 2007, 2008, and 2009 were HK$513,045, HK$412,919, HK$131,880 and HK$67,745 respectively.  These figures are extracted from the company’s audited financial reports.  eBiz in fact had no or minimal business operations, sales, revenue or income. 

153.  It did not even have a sales department.  This is outright admitted by KC Lam in the contemporaneous emails.  See, eg:

(1)  In an email dated 24 January 2010 sent to Harry Tse and Desmond Yue (which is referred to by the plaintiffs as “the January 2010 KC Lam Admission Email”), KC Lam wrote:

“We have no time to employ and train a sales engineer now, sure after IPO.”

(2)  In an email dated 31 October 2011 to the 2^nd plaintiff, KC Lam wrote:

“eBiz had no sales department. eBiz will use IPO money to build the sales team. eBiz, like all IT companies, were burning money in the past years.”

154.  Second, it is KC Lam’s own evidence that eBiz was not able to generate any significant revenue at all in the first few years, without substantial funding from a successful IPO for aggressive marketing.  He said this in his witness statements:

“Since most of the investment into eBiz was spent on research and development of its software product WebExpress and on building up user base, eBiz did not have sufficient capital to launch any large-scale marketing and promotional campaign to generate critical mass users. Hence, eBiz cannot generate any significant revenue in the first few years of its operation. …”

“As was typical of start-up IT companies, I envisaged that eBiz would require substantial funding to support its substantial capital expenditure, … I therefore started to formulate the plan and strategy for eBiz to get IPO listing with a view to generating funding which would be required for its future growth and development as well as materialization of its business potential.” (emphasis added)

155.  Third, as regards the high-value agreements signed or secured by eBiz:

(1)  The annual revenue under the agreement signed with Digital China is expressly stated to be non-binding.

(2)  The letter of intent signed with Lenovo is similarly expressly stated to be non-binding.

(3)  There is no basis to say that an agreement was to be signed with China Telecom.

156.  For the above reasons, the plaintiffs say that there can be no serious dispute that the Revenue Misrepresentation is clearly false, and that the defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false. 

The Company Valuation Misrepresentation

157.  The Company Valuation Misrepresentation stands out from the other misrepresentations in one way.  The primary factual dispute surrounding the other representations is more about whether they were made, rather than whether they were false.  The converse is true for the Company Valuation Misrepresentation. 

158.  The Company Valuation Misrepresentation is pleaded as follows – eBiz’s business had been fairly valued by independent third party professionals to be worth HK$857,000,000 as of October 2004, and RMB2,117,000,000 as of May 2008 and HK$1,459,000,000 as of October 2010.

159.  It is necessary to reproduce the plaintiffs’ plea in respect of the alleged falsity:

“The valuations of the Company’s business that had been prepared by independent third party professionals (namely BI Appraisals Limited for the October[1] 2004 valuation and Grant Sherman Appraisals Limited for the May 2008 and October 2010 valuations) were not fair valuations in that they were premised entirely upon assumptions on wholly idealistic and unrealistic projected growth and sales figures provided by the Company itself, for which there is no or no sufficient factual basis.

For example and reflecting the lack of any or any sufficient factual basis behind the projected growth and sales figures, the projected sales figures on which the valuations were based included a projected gross revenue of RMB¥371,250,000 for 2008 and RMB¥464,063,000 for 2009; in reality and as a matter of fact, actual gross revenue figures for 2008 and 2009 were HK$131,880 and HK$67,745 respectively.”

160.  In cross-examination, Mr Chain pursued a line of questioning which sought to establish that eBiz did not have the available working capital to earn the sales projection underlying the valuation reports.  That, if established, would in turn support the plea that the valuations were premised entirely “on wholly idealistic and unrealistic projected growth and sales figures … for which there is no or no sufficient factual basis”.  I shall call it “the working capital point” in this judgment.  The questions were objected to by Mr Wong on the basis that the point ought to have been pleaded but was not, and hence the plaintiffs should not be allowed to run it. 

161.  Having heard counsel’s argument on this issue, I directed that the plaintiffs be allowed to continue with this line of questioning, with the issue of whether they should be allowed to rely on this point as part of their case to be reserved to closing.  In the course of the oral closing submissions, at my request, Mr Chain submitted a written formulation of the working capital point if the point were to be pleaded.  That was of course without prejudice to his position that the point need not be pleaded in the first place. 

162.  Had the point been pleaded, the plaintiffs would have formulated it in this way:

“As emerged in the course of cross-examination during trial, the specific assumptions made within the projected growth and sales figures which lacks factual basis or sufficient factual basis are as follows:-

(1) For the B.I. Appraisals 2004 Valuation, the assumption that there is a substantial amount of working capital immediately available to eBiz to generate RMB198 million of revenue in 2005.

(2) For the Grant Sherman 2008 Valuation, the assumption that working capital of HK$50 million to HK$100 million is available to eBiz, derived from acquisition of 10% to 20% equity interest of eBiz in June to August 2008.

(3)  For the Grant Sherman 2010 Valuation, the assumption that working capital of SG$8 million is immediately available to eBiz, independent of an IPO.”

163.  This is the pleading point which is mentioned in the “Introduction” section above and will be dealt with in the “The working capital point” below.  As will be seen, I am of the clear view that the plaintiffs should not be allowed to run this point.  I therefore will not go into the evidence on this point in this section as such evidence does not properly form part of the plaintiffs’ case in this action.

164.  Among the three valuation reports, the BI Appraisals report was the valuation most extensively referred to and utilised by the defendants as it was the first report obtained by KC Lam and it pre-dated the five rounds of investments under the Investment Structure.  It is, on the plaintiffs’ case, considered to be the “most crucial” valuation report among the three.  While the first and second Grant Sherman reports post-dated the Investment Structure, they are still relevant as they were made to maintain and bolster the Company Valuation Misrepresentation. 

165.  It can safely be said outright that there is no serious dispute that the valuation figures were made known to all the plaintiffs and they knew about them.  For instance, in respect of the BI Appraisals valuation, the defendants’ sales pitch documents expressly cited the valuation figure, eg, the June 2006 Key Points 1 (“HK$857 Millions Dollars Company – By B.I. Appraisals Limited”) and the June 2006 Brochure (“eBizAnywhere is a HK $ 857,000,000 Company”).

166.  What is controversial is whether copies of the actual reports were shown or given to the plaintiffs; if so, whether they read them; and, if that is the case, to what extent they did so.  This point is material because KC Lam and eBiz are relying on some of the passages in those reports which stated that eBiz was a start-up company.  This would, KC Lam and eBiz contend, contradict the plaintiffs’ case that they were consistently told that eBiz was already earning substantial revenues.  This will have a significant bearing on the plaintiffs’ case on the Revenue Misrepresentation.  I shall make use of this section to set out each of the plaintiffs’ case on this issue.

167.  The 1^st plaintiff’s case is based on the BI Appraisals valuation and the first Grant Sherman valuation. 

(1)  Over two meetings in July 2006, Desmond Yue showed her and took her through the BI Appraisals report but did not give her a copy.  She did not read the “fine print” of the report “as Desmond Yue just showed [her] the report to illustrate that eBiz was indeed exceptionally valuable”.  In cross-examination, she made the following remarks:

“The BI Appraisal was shown to me because it shows me the page where that is valued, that it’s is being valued at that amount, that BI Appraisal.”

“If Desmond show me the valuation, all I’m interested is the amount that this company valued this much. It shows that this company is having good sales, they have got sales figures.”

(2)  In a subsequent dinner gathering in February 2007, KC Lam and Desmond Yue gave her a copy of the report.  But she did not read the “fine print” as the report had already been shown to her before, and given everything else she had been cumulatively told by that time.

(3)  She received a copy of the first Grant Sherman report from Desmond Yue.  Similarly, she did not read the “fine print” for the same reason.  That is what she said in her written statements.  However, in her cross-examination, she revealed that she only read the valuation figure.  Here is the relevant exchange:

“A. Desmond will show it to me, the page where the company valued. So I just looked at the value, pass to me, and then I put aside. I don’t read. I don’t read all the contents.

…

Q. … Are you telling her Ladyship you just looked at page 428? Page 428. Or you did not read the report at all? Which version is it?

A. It’s only on this page to look at it’s RMB 2 million.

Q. All right.

A. It’s – I only see this figure – this amount, sorry, its’ in – figure – not – amount, sorry.

Q. Sorry.

A. Sorry.

Q. Now you say you have read this page?

A. I only read on this amount. I didn’t read the full page.

…

Q. You turned to this page, you read this page?

A. I only see this amount, because Desmond did tell me that this valuation, RMB2 million.

…

Q. It’s a simple question: did you read this page of the report?

A. I did flip to this page.  I see – I only interested in the amount.”

168.  The 2^nd plaintiff’s case is based on the BI Appraisals valuation only. 

(1)  He was provided with a copy of the report by Desmond Yue during an individual meeting in October 2006. 

(2)  He did not read the “fine print” “as it appeared to be very technical”.

(3)  In cross-examination, he was asked to elaborate on what he meant by the words “fine print”.  (The same was done when Mr Wong cross-examined the other plaintiffs who used the same expression in their written statements.)  Here is the exchange:

“Q. Okay. Again, Mr Koh, I have to ask you, what do you mean by “fine print”?

A. The content.

Q. Sorry?

A. The content, the qualifications.

Q. The content, the qualifications?

A. Yes.

Q. Did you read the report?

A. No.

Q. Which part did you read, which part did you not read?

A. I just read – he just show me the figure.

…

Q. No, I’m asking you: what do you mean by “fine print”, that you did no read, according to your witness statement?

A. The whole thing, the whole don’t.

Q. The whole thing?

A. Yes, sir.

Q. you did not read it?

A. No.

Q. At all?

A. No.

Q. At all?

A. Yes, sir.”

(4)  The following exchange is also worth highlighting:

“Q. You read it recently?

A. No, no, no. If I had read it at that point of time –

Q. Yes, then?

A. -- of the reason and all that, then I would not have invested in that.

Q. You would not have.

A. Yes, sir.

…

Q. I understand, but I’m following up on what you said. You said, “If I had read it, I would not have invested”.

A. Yes, sir.

Q. Right?

A. Yes, sir.

Q. So the reason, I suggest to you, is that because the report told you about risk and other things, that would deter you from investing; is that right?

A. That’s right.

Q. Thank you.”

169.  The 3^rd plaintiff’s case is based on the BI Appraisals valuation only.  She was handed a hard copy of that report by Desmond Yue at meetings in 2006.  She “did not read the fine print of the report as it appeared to be very technical”.  Desmond Yue just showed her the report to illustrate that eBiz was indeed very valuable.

170.  The 4^th plaintiff was not shown a copy of the BI Appraisals report but at a dinner in 2006, KC Lam and Desmond Yue told him that eBiz was “independently valued at US$110 million in 2005”. He also saw the valuation of HK$857,000,000 in the June 2006 Brochure.  He did not obtain a copy of the first Grant Sherman report but received emails drawing his attention to the valuation figure.  He received a copy of the second Grant Sherman report by email.  He did not read the “fine print” of the report as it did not occur to him that there was a need to do so given everything he had been cumulatively told by that time.

171.  The 5^th plaintiff’s evidence is not entirely clear.  In his written statement, he said that he did not read the “fine print” of the BI Appraisals report “as it appeared to be very technical” and Desmond Yue just showed him the report at lunch meetings in December 2007 and January 2008 but did not give him a copy.  But, in cross-examination, he said that he was given a valuation report but he simply focused on the valuation figure.  According to the plaintiffs’ written closing submissions, it seems to be the 5^th plaintiff’s case that he had also received the two Grant Sherman reports but did not read them at all other than the actual valuation figures.

172.  The 6^th plaintiff received copies of the BI Appraisals report and the first Grant Sherman report from Desmond Yue, who told him about the valuations.  As the reports are in English, he did not carefully review their contents.  (He says he only has limited, basic conversational English proficiency.)  He received the second Grant Sherman report by the group email sent by Desmond Yue.

173.  The 7^th plaintiff received all three reports.  He did not read the “fine print” of the report “as it appeared to be rather technical” and it did not occur to him that there was a need to do so given everything he had been cumulatively told by that time.

174.  The 8^th plaintiff’s case is based on the BI Appraisals valuation only.  He was shown a copy of the report by Desmond Yue at a meeting in March 2007.  Desmond Yue briefly took him through it, in particular emphasising the valuation figure.  He did not read the “fine print” as it appeared to be very technical and Desmond Yue just showed him the report to illustrate that eBiz was indeed very valuable.

175.  The 9^th plaintiff’s case is based on the BI Appraisals valuation only.  She was provided with a copy by KC Lam and Desmond Yue at the dinner gatherings between November 2006 and April 2007.  She did not read the “fine print” as it did not occur to her that there was a need to do so given everything else she had been cumulatively told by that time.  That is what she said in her written statements.  In cross-examination, she revealed that she did not read the report at all:

“Q. Again, I suggest to you, madam, being a senior IT specialist yourself, you would definitely have spent time to look through the BI Appraisal report.

A. Okay. Usually, when Desmond passed me any document, I would ask him what is the document or what is the crux of the document, so he will point to me that this is the value of the report. That’s all, I take it. Because during that time, I’m very busy with my mum, my work, and also I have to be a caregiver to my mum. I don’t have the time.

…

Q. … I suggest to you that with your background and with your investment, you would plainly have considered the BI Appraisal report to find out about the details of the company’s business and the basis of the projections; “yes” or “no”?

A. No.

Q. No? You just didn’t read it at all; it’s your evidence?

A. Yes.”

176.  The 10^th plaintiff’s case is based on the BI Appraisals valuation only.  He was shown a copy (but not given a copy) at a coffee meeting with Desmond Yue in October 2006 and the latter told him about the valuation figure.  He did not read the “fine print” of the report at the time “as Desmond Yue just showed [him] the report to illustrate that eBiz was indeed very valuable”.  He did not receive the first Grant Sherman report.

177.  The 11^th plaintiff does not mount a claim based on the Company Valuation Misrepresentation.

178.  The plaintiffs contend that the Company Valuation Misrepresentation was false.  I should record here that the plaintiffs have made plain in this action that they are not challenging the independence or professional integrity of the valuers.

179.  As put by the 4^th plaintiff, the sales projections which were provided to the valuers were “wild and outlandish”.  He relied on KC Lam’s own words:

(1)  In the defendants’ own internal emails, KC Lam said that Biz “remains zero profit during the past years, no top line and bottom line” (email dated 22 December 2009) and “during the past years our sales are close to zero” (the January 2010 KC Lam Admission Email).

(2)  KC Lam admitted that all along “eBiz had no sales department … eBiz will use IPO money to build the sales team” (email to the 2^nd plaintiff dated 31 October 2011).

(3)  He admitted that “any valuation is meaning less unless we have sales” (email to the 4^th plaintiff dated 15 September 2011).

180.  The 4^th plaintiff summed up the falsity as follows:

“(1) KC Lam knew all along that eBiz had no sales, and no capability of generating sales pre-IPO since there was no sales team (which could only be built with IPO money, as per his own admission). Sales projections in the hundreds of millions of dollars were therefore not only unrealistic but pure fantasy.

(2) Nevertheless, KC Lam caused eBiz to instruct independent valuers to produce valuation reports based on assumptions that the pure fantasy sales projections he provided would materialize. Effectively, it was not eBiz that was being valued, but some pure fantasy construct of a company.

(3) The Defendants then knowingly exploited the resultant pure fantasy valuation reports to make the Company Valuation Misrepresentation to the Plaintiffs and other victims of the Fraudulent Scheme, presenting the pure fantasy valuation figures as fair and independent assessments of the value of eBiz.”

181.  The plaintiffs also rely on the fact that in May 2011, eBiz Beijing and eBiz Nanjing were sold to KC Lam at a mere sum of HK$1 million, which is of course a far cry from the three valuations shown to the plaintiffs throughout the material period.

The High Profile Partners Misrepresentation

182.  The High Profile Partners Misrepresentation is pleaded as follows – rich and famous companies and individuals had already become, or had agreed to become, or were in serious discussions about becoming partners of eBiz for its WebExpress software business.  The high profile partners mentioned by the defendants include the Temasek group, the Hutchison group, the China Telecom group, the Malaysia Telecom group, PCCW, Skype, Li Ka Shing, Digital China, Lenovo Group, Ninetowns, Jardine One Solution, CCPIT, China Chamber of International Commerce, Nanyang Technological University, UKM Technology Sdn Bhd (for National University of Malaysia), China ASEAN Association, and a general reference to “Hong Kong tycoons”.

183.  At the trial, the scope of the misrepresentation is narrowed down to the following three high profile partners only:

(1)  the Temasek group;

(2)  the Malaysia Telecom group; and

(3)  the Hutchison group.

184.  As regards the Temasek group:

(1)  The representation was made in an email sent by Desmond Yue to the 6^th plaintiff on 24 August 2006, which read:

“Dear eBiz investor,

Dr Lam KC is in UK, meet up with London Stock Exchange

4th September in Singapore, eBiz will finalize the JV with Tamasek member firm, MSPS Pte Ltd

And eBiz investment documents will be ready by next month.

Good day

Desmond Yue” (emphasis added)

(2) Notwithstanding the use of the word “will”, when the above email is read in proper context, the representation was that eBiz’s joint venture with the Temasek group would be finalised as a matter of certainty on the date expressly specified, as 4 September is only 11 days away from the date of the email.

(3) The representation was false because, as accepted by KC Lam, there was no joint venture with MSPS Pte Ltd on 4 September 2006.

(4) Oral representations to similar effects were made to the 2^nd plaintiff by KC Lam and/or Desmond Yue during three meetings between mid-July and November 2006. He described the oral representations as follows:

“eBiz has famous business partners and supporters including [CCPIT], the Hutchison Group, and China Telecom Corporation Limited. eBiz would also be holding talks with the Temasek Group for finalizing joint venture arrangement” (emphasis added)

“eBiz was described to me by KC Lam and Desmond Yue as a company planning to be listed within 2 years with famous existing business partners and supporters including the CCPIT, the Hutchison Group and China Telecom Corporation Limited, and with joint venture arrangements with the Temasek Group to be finalised. These words clearly described existing partnerships and partnerships which would be finalised (and not merely potential partnerships which may be entered into in the future, with no binding terms of cooperation)” (emphasis added)

(5) Oral representations were also made to the 6^th plaintiff during dinner gatherings after June 2006. He felt reassured by Desmond Yue that “eBiz would finalise a joint venture with a Temasek member”.

(6) The truth was, however, that there were no discussions whatsoever with the Temasek group in 2006.

185.  As regards the Malaysia Telecom group:

(1)  The representation was made orally to the 4^th plaintiff.  At meetings in Shanghai in early 2008, KC Lam orally represented to him that “[i]n early 2008, eBiz struck a deal to work with Malaysia Telecom Group and the Hutchison Group” and that these deals were “not merely that they may be potential partners in the future, with no binding terms of cooperation”.

(2)  The representation was false because eBiz never struck a deal with the group whether in early 2008 or otherwise.

186.  As regards the Hutchison group:

(1)  The representation was made orally to the 2^nd, 4^th and 5^th plaintiffs and was to the effect that the Hutchison group was or would become a strategic partner of eBiz between 2006 to 2008. 

(2)  For the 2^nd plaintiff’s evidence, see para 184(4) above.

(3)  For the 4^th plaintiff’s evidence, see para 185(1) above.

(4)  The 5^th plaintiff’s evidence is that KC Lam, Tommy Lai and Desmond Yue orally represented to him in meetings between December 2007 and January 2008 that:

“Due to KC Lam’s connections and/or eBiz’s business, mega corporations such as Philippine telecom companies, Malaysian telecom companies, the Temasek Group, and the Hutchison Group would become strategic investors or partners of eBiz. In particular, the Hutchison Group would help distribute eBiz’s WebExpress software to Hutchison’s customers.” (emphasis added)

(5)  The representation was false.  While there is evidence that a collaboration agreement dated 13 July 2010 was signed between eBiz and Hutchison GCL, there was never any other cooperation between eBiz and the Hutchison group.

187.  The plaintiffs contend that the High Profile Partners Misrepresentation (as revised) was false because none of the high profile partners mentioned by the defendants had actually become, or agreed to become, or were ever in serious discussions to become partners of eBiz.  The defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false.

The High Profile Investors Misrepresentation

188.  The High Profile Investors Misrepresentation is pleaded as follows – rich and famous companies and individuals had already invested in and become, or had agreed to invest in and would soon become, or were in serious discussions about investing in and becoming shareholders of the Company.  The high profile investors mentioned by the defendants include the Temasek Group, the Hutchison Group, Li Ka Shing, Richard Li Tzar Kai, “Nan Da Soft Technologies Ltd” (said to be a company listed on the Hong Kong Stock Exchange), a “France telecommunications giant”, Cheng Yu Tung of the Hong Kong New World Group, and the Ho Family (the founding family of Hang Seng Bank).

189.  At the trial, the scope of the misrepresentation is narrowed down to the following five high profile investors only:

(1)  Cheng Yu Tung;

(2)  Mr Li Ka Shing;

(3)  a French telecommunications giant;

(4)  the Hutchison group; and

(5)  a Malaysian blue chip company.

190.  As regards Cheng Yu Tung:

(1)  The representation was made in an email sent by Desmond Yue to KC Lam copying the 1^st, 2^nd, 3^rd, 4^th, 6^th and 9^th plaintiffs on 15 December 2006.  It read:

“Dear Dr Lam KC, on behalf of a group of South East Asia friends, we hereby congratulate you are appointed as the Vice Chairman of China Japan Economics Research Association.

As you are the personal friend of HK New World Group Tycoon, Dr Cheng Yu Tung who participates in our eBiz project will be great.

Cheers

Desmond Yue Yew Meng

B.cc friends & eBiz investors”

(2)  The clear meaning which the email conveys is that Cheng Yu Tung was already a participant.

(3)  The representation was false because, as accepted by KC Lam, Cheng Yu Tung never participated or invested in eBiz.

191.  As regards Li Ka Shing:

(1)  The representation was made orally to the 1^st, 2^nd, 8^th and 9^th plaintiffs and was to the effect that Li Ka Shing would be investing in eBiz or would be coming on board from around late 2006 to mid-2008.

(2)  The 1^st plaintiff’s evidence is that at meetings from mid-2007 to August 2009, KC Lam and/or Desmond Yue orally represented that “Li Ka Shing is now investing in eBiz” and this was “an unmistakable representation of Li Ka Shing’s existing investment (and not merely a potential investor)”.

(3)  The 2^nd plaintiff’s evidence is that at a meeting in March 2007, Desmond Yue repeated previous representations by KC Lam and Desmond Yue and further mentioned that:

“Li Ka Shing and Hang Seng Bank would soon be investing in eBiz. It was a clear representation that although Li Ka Shing and Hang Seng Bank had not yet invested, their investment was simply a matter of time and guaranteed (and not merely that they may potentially invest in the future).” (emphasis added)

(4)  The 8^th and 9^th plaintiff’s evidence is to a similar effect.

(5)  The representation was false because, as accepted by KC Lam, Li Ka Shing was not poised to invest in eBiz from 2006 to December 2008.

192.  As regards the French telecommunications giant:

(1)  The representation was made by an email from Desmond Yue to the 6^th plaintiff’s Hotmail address dated 7 July 2006.  It read:

“Dear eBiz Investors, next Friday, Dr Lam KC with me visit Brunei for celebrating Brunei’s Sultan 60th Birth Day. …

Just for your information, A France TelCo giant is in discussion with the Board for equity participation in eBiz … Looking ahead, eBiz can fly very high…

Cheers

Good Day

Desmond Yue”

(2)  The representation was false.  Not only was there never any “France TelCo giant” investing in eBiz, the truth is that there were never any discussions whatsoever in the first place.

193.  As regards the Hutchison group:

(1)  The representation was made orally to the 4^th, 7^th and 11^th plaintiffs and was to the effect that the Hutchison group would be investing in eBiz very soon from late 2007 to early 2008.

(2)  The 4^th plaintiff’s evidence is that at meetings in early 2008, “KC Lam claimed … that the Hutchison Group is also interested in investing in eBiz” (first witness statement) and “KC Lam stated that the Hutchison Group is interested in making an immediate investment in eBiz (and not merely that the group may potentially be interested in investing in the future)” (supplemental witness statement).

(3)  The 7^th plaintiff’s evidence is that at a group meeting in February 2008, KC Lam orally represented that “eBiz is in talks with big corporations and tycoons interested in investing in eBiz, including the Hutchison Group”.

(4)  The 11^th plaintiff’s evidence is that at a Christmas lunch gathering in December 2007, KC Lam orally represented that “[t]he Hutchison Group in Hong Kong would be investing in eBiz very soon” (first witness statement), and “[i]t was a clear representation that although the Hutchison Group had not yet invested, their investment was simply a matter of time and guaranteed (and not merely that they may potentially invest in the future)” (supplemental witness statement).

(5)  The representation was false because, as accepted by KC Lam, there were no such discussions in 2007 or 2008.

194.  As regards the Malaysian blue chip company:

(1)  The representation was made by emails from Desmond Yue to the 4^th plaintiff dated 6 May 2009.  It read:

“Dear Vincent,

There is a blue-chip company from Malaysia to invest S$2mln in eBizAnywhere with valuation of S$200 min.

As it requires EGM approval, I hereby attached the proxy form for you to appoint me as your Rep to vote.

Please sign/scan and email back to me of fax over to eBiz office …

Thank you

Desmond Yue YM”

(2)  The representation was that the blue-chip company would be investing as a matter of certainty, given that eBiz already had gone through all the formalities and drafted the necessary proxy forms.

(3)  The representation was false.  There was no Malaysian blue chip company that would invest as a matter of certainty.

195.  The plaintiffs contend that the High Profile Investors Misrepresentation (as revised) was false because none of the high profile investors mentioned by the defendants had actually invested in, or agreed to invest in, or were ever in serious discussions about investing and becoming shareholders of eBiz.  The defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false.

The KC Lam Credentials Misrepresentation

196.  The KC Lam Credentials Misrepresentation is pleaded as follows – KC Lam is a financial genius and investment wizard, with extensive knowledge and experience, who has connections with many political and business leaders, and in particular has the prior experience of being the driving force and main person behind the listing of Ninetowns on the NASDAQ Stock Exchange.

197.  At the trial, the scope of the misrepresentation is narrowed down to only the last part, namely that KC Lam has the prior experience of being the driving force and main person behind the listing of Ninetowns on the NASDAQ Stock Exchange.

198.  Notwithstanding the narrowing down, the plaintiffs submit that the other credentials, though not being relied on as an actionable misrepresentation, remain important to their case, as they show how KC Lam utilised the Indoctrination Method to gain the plaintiffs’ trusts.

199.  The KC Lam Credentials Misrepresentation is corroborated by the following documents.

200.  First, a business magazine called “華商世界” published in 2005 featuring KC Lam on its cover and containing a four-page article with the title “林健忠 新一代儒商” (“the 2005 Magazine Article”).  The following passage appeared in the article:

“他在北京投資設立一家開發電子報檢技術的軟體公司，並於2004年底在美國納斯達克股票市場上市，市值4億美元；此外，他還在南京設立了一家軟體發展公司” [2] (emphasis added)

201.  Second, the General Information on Pre-IPO Investment:

“For information, 2004, Dr Lam 1st company listed in Nasdaq (NineTowns Technologies Ltd; Nasdaq Code: NINE, Today Market cap more than US$200mln )”

202.  Third, the June 2006 Key Points 1:

“Company Management with the listing experience in Nasdaq, USA

– Ninetowns Technologies Ltd listed in 2004”

203.  The above documents convey the following meanings:

(1)  KC Lam founded (“設立”) Ninetowns.

(2)  He listed Ninetowns.

(3)  Ninetowns belonged to him (“Dr Lam 1^st company”).

204.  The KC Lam Credentials Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly.  While different words might have been used on the many occasions when the representation was made and repeated, in gist, the message conveyed was that KC Lam was responsible for the listing of Ninetowns.  I quote the following as examples.

205.  In his written evidence, the 9^th plaintiff said that Desmond Yue made the following oral representation over several individual tea and dinner meetings from mid-2006 to November 2006:

“KC Lam is an investment genius, who was previously responsible for launching the IPO of a PRC internet company called Ninetowns on NASDAQ. After listing, Ninetowns’ market valuation is over US$400 million, earning considerable profits for its pre-IPO investors.” (emphasis added)

206.  In his written evidence, the 10^th plaintiff said that at a coffee meeting with Desmond Yue in late October 2006, the latter said:

“The chairman of eBiz is KC Lam, a wealthy and influential businessman with rich investment experience, who was responsible for successfully listing a company called Ninetowns on NASDAQ.” (emphasis added)

207.  In his oral testimony, the 10^th plaintiff added:

“when I have the coffee meeting with Desmond Yue, which is D3, … he showed me the photo of the NASDAQ which shows that KC Lam is the main driving force of the, so-called the listed company Ninetowns. Then he also showed me the 2005 magazine where there’s a short article which says that KC Lam is a genius, he’s a -- invest -- very good in -- he’s a wizard in investment. That impressed me” (emphasis added)

“I mean when we were told by Desmond Yue that he was the driving force in the listing of Ninetowns, [KC Lam] did not deny it. There was no objection, nothing of the sort that he say that he is not.” (emphasis added)

208.  The 11^th plaintiff said this in cross-examination:

“Q. … Did he say, “I’m the main person behind the listing of Ninetowns”?

A. Yes. …

Q. In so many words, that, “I am the main person behind the listing of Ninetowns”?

A. Yes, because he felt proud about it.”

209.  The KC Lam Credentials Misrepresentation was false because KC Lam was not the driving force or main person behind the listing of Ninetowns.  His role was limited to investing in and introducing strategic investors to the company.  He was not involved in the management at all.  This has been admitted by him. 

210.  In the premises, the defendants made the KC Lam Credentials Misrepresentation knowingly, without belief in its truth, or recklessly, not caring whether it be true or false.

The Car Park Security Misrepresentation

211.  The Car Park Security Misrepresentation is pleaded as follows – each investment would be secured by the car parks in Hong Kong which were ultimately beneficially owned by KC Lam.  The value of the car parks has been fairly valued by an independent third party professional and is sufficient to fully secure each investment.  The misrepresentation was made with particular reference to the valuation report of Full Star dated 19 October 2006 which stated that the value of 15 of the car parks in October 2006 was HK$25,968,000, ie HK$1,731,200 per car park.

212.  At the trial, the scope of the misrepresentation is narrowed down in two ways.  First, the plaintiffs are no longer pursuing the part which says that the car park properties have been fairly valued by an independent third party professional.  Second, they are no longer pursuing the misrepresentation as regards the Ocean Gate round of investments.  This is because the value of the specific car parks allocated to that round was sufficient to cover the loan amount.

213.  It is necessary to set out some undisputed background facts. 

(1)  Under the Investment Structure, KC Lam (through Strong Man) put up a total of 20 car parks as security.

(2)  The Full Star valuation covered only 15 car parks.  The other five were acquired subsequently.

(3)  With Full Star valuing each car park at HK$1,731,200, the valuation which Full Star would have arrived at for 20 car parks is taken to be HK$34,624,000.  (The plaintiffs are content to argue their case this way which they say is favourable to the defendants because evidence shows that the prices actually paid to purchase the subsequent car parks were much lower than the Full Star valuation.)

(4)  In this action, the single joint expert has come up with a valuation of HK$31,506,660 for the 20 car parks.  On average, each car park is therefore worth HK$1,575,333.

(5)  For the Ocean Gate round, six car parks were allocated.  For the Radiant Sun round, six car parks were allocated.  For the Top Gain round, one car park was allocated.  For the Liberty Star round, three car parks were allocated.  Lastly, for Kingston Profit, four car parks were allocated.

(6)  Even applying the Full Star valuation (which is more favourable to the defendants), with the exception of the Ocean Gate round, the value of the allocated car parks falls short of the loan amount in respect of each round of investments.  For instance, for the Radiant Sun round, the car park security is only worth 92.09% of the loan amount.  For the Liberty Star round, the car park security is only worth 69.25% of the loan amount.

214.  The Car Park Security Misrepresentation was false because the value of 20 car parks was not sufficient to fully secure the total loan amount of HK$40,930,000.

215.  The Car Park Security Misrepresentation is corroborated by the following documents.

216.  First, the June 2006 Key Points 1:

“1^st Placement Shares come with a Dollar to a Dollar NTA protection”

217.  Second, the June 2006 Key Points 2:

“This agreement comes with Asset Backup scheme, in the case that eBiz without any financial capacity to redeem the Convertible Loan, the investors can take over the assets or opt for another 2 more years extension for eBiz to be listed or being acquired”

218.  Third, the January 2007 Info Memo:

“Second and last Placements with Assets backing … the founder, Dr KC Lam offers personal assets to back-up all the investments” (emphasis added)

219.  Fourth, in a document used by Desmond Yue in relation to the False IPO Notification, which is referred to as “the August 2009 speaking note”:

“This is a very special loan investment program which giving 5% dividend payment per year and HK Carpark assets as collateral”

220.  The above documents convey the meaning that full security would be provided for all the investments.  This was either expressly stated (“Dr KC Lam offers personal assets to back-up all the investments”) or implied in the context.

221.  The implication would arise since there is no qualification that the security would be offered as a partial backup only.  In addition, the whole purpose of the security was to cater for the contingency that eBiz was unable to repay the loans.  A reasonable reader would therefore have understood the above statements to mean full security.

222.  Furthermore, for those plaintiffs who received both the June 2006 Key Points 1 and the June 2006 Key Points 2, namely the 6^th, 7^th and 8^th plaintiffs, the cumulative meaning must have been that there would be full security for all the investments. The first placement was expressed to have “a Dollar to a Dollar” protection. As there is no suggestion that the subsequent rounds of investments would be treated differently, one would expect that the subsequent placements would be similarly protected “a Dollar to a Dollar”.

223.  The Car Park Security Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly and, on occasions, also by Tommy Lai.  In gist, the message was that all the investments would be fully secured by the car park security.  Sometimes, express words would be used. On other occasions, the message could be implied.  I quote the following as examples.

224.  According to the 3^rd plaintiff, over several individual meetings and telephone calls from mid-2006 to November 2006, Desmond Yue orally represented to her:

“In any case, the loan would be fully secured by car park lots in Hong Kong as collateral.”

225.  In cross-examination, she said:

(1)  KC Lam also made such oral representations at one of the New Year’s celebrations in Singapore prior to her first investment in Ocean Gate:

“Q. I put it to you in particular the 1^st defendant had never represented to you that the loan investments would be fully secured by the car parks. Do you agree or not agree?

…

A. Well, when we made the investment for the first time, he did say that to us.”

“Q. Can you recall on what occasion?

A. Well, every year he would come to Singapore to celebrate New Year with those of us in Singapore and he would say that.”

(2)  From April 2007 to April 2008, the representations were repeated:

“Then [Desmond Yue] said that I was, well, lending money to this company and I would not have to face any risk. And then, well, it would be backed up by car parks in Hong Kong, and then I would get it back 100 per cent. So it’s 100 per cent, and if it’s not successful, then the money would be returned to me. Then, every year, I would be able to get interest.” (emphasis added)

226.  Similarly, according to the 6^th plaintiff, at his individual face-to-face meeting with Desmond Yue in mid-2006, the latter represented:

“Car park properties in Hong Kong would be used as collateral for the loan (with no qualification given, it was clear from context that it was being said that the car park properties would fully secure the loan).”

227.  In cross-examination, the 6^th plaintiff said that at the dinner gatherings with Desmond Yue and KC Lam after June 2006:

(1)  According to Desmond Yue:

“And when this investment was to be made, well, there would be a full security by car parks, 100 per cent security.” (emphasis added)

(2)  As regards KC Lam:

“Q. In particular, I put it to you the 1st defendant himself had never represented to you that the loan investment would be fully secured by the car park.

A. He did.

Q. So you say the 1st defendant orally himself told you, specifically, fully secured by the car park?

A. It was said -- it was not said personally, but he said it to a group.

Q. He said it to a group. At which you were present?

A. I was present.”

228.  The 7^th plaintiff’s evidence is that between February and April 2007, he had several meetings with KC Lam, Desmond Yue and Tommy Lai.  During the meetings, he was given copies of documents, such as the June 2006 Key Points 1, the June 2006 Key Points 2 and the January 2007 Info Memo.  And the three of them orally represented that:

“the investment in eBiz through the loan scheme is very safe as it would be fully secured by car park lots in Hong Kong as collateral” (emphasis added)

229.  KC Lam made the Car Park Security Misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false, as he knew the approximate value of each individual car park by reference to the Full Star valuation.

The IPO Prospects Misrepresentation

230.  The IPO Prospects Misrepresentation is pleaded as follows – the business of eBiz (as described by (1) the Revenue Misrepresentation, (2) the Company Valuation Misrepresentation, (3) the High Profile Partners Misrepresentation, and (4) the High Profile Investors Misrepresentation), was good enough for it to proceed to IPO within two to three years on its own, very likely leading to investment returns of 5 to 10 times, or even 10 to 20 times.

231.  There was some discussion in the course of the opening submissions about what the phrase “on its own” means.  It is explained in the plaintiffs’ closing submissions that eBiz was represented to them as one that possessed the requisite revenue, valuation, investors and partners that enabled it to proceed to an IPO without the need for any additional external funding or partnerships at the material times.  In other words, when eBiz was sold to them, it was described as a company which was ready to proceed to IPO with the resources it had already obtained.  It was an overarching misrepresentation which tied together the other Fraudulent Misrepresentations.

232.  This is how Mr Chain puts it:

“From the perspective of the Plaintiffs, eBiz was a company with a multi-billion dollar valuation as supported by substantial revenue turnover, which was in part generated through its existing partnerships with large conglomerates and wealthy investors.”

233.  The IPO Prospects Misrepresentation is corroborated by a number of contemporaneous emails.  I would highlight one of them below.  As to the others, I do not consider it necessary to set out the contents here.  Many of these emails appear to be neutral in that they merely show that the defendants were taking steps in the IPO process.  In particular, those emails sent by Desmond Yue in 2010 were quite plainly just updates given to the investors about the IPO.  When read alone, I have to say that they do not at any rate go to make out the plaintiffs’ allegation.  I bear in mind that I should take a holistic approach evidentially.  I just wish to make it clear here that I have reviewed and taken into account those emails.

234.  The plaintiffs rely on an email sent by Desmond Yue with the title “Planning to List in 2007” on 26 July 2006 to the 6^th plaintiff, which was also seen by the 3^rd and 9^th plaintiffs.  It read:

“Dear eBiz Investors,

Updating of recent cooperate movements, eBizAnywhere Technologies Ltd by taking the professional views, plans to list the company in Tokyo Stock Exchange by 2007, next year. …

Cheers, thank you for your patience.

Desmond Yue”

235.  The IPO Prospects Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly.  In gist, the messages conveyed were:

(1)  eBiz would list “very soon” or within two to three years.  It was “on the brink of an IPO”.  The IPO was “at a very advanced stage”.

(2)  There was a high likelihood of success of eBiz listing soon.  The prospects were “very good” or “excellent”.

(3)  eBiz would list on a major stock exchange.

236.  The 1^st plaintiff’s evidence is that over two meetings in July 2006, “eBiz was described to me by Desmond Yue as a very successful and highly valuable, award-winning company, with excellent prospects of success of listing very soon”.

237.  The 4^th plaintiff’s evidence is that at a group dinner, “Desmond Yue had told me … The plan was to list eBiz within 2 years and there was a high likelihood of success with KC Lam at the helm”.

238.  The 7^th plaintiff’s evidence is that at meetings between February and April 2007, KC Lam, Desmond Yue and Tommy Lai stated that “eBiz is on track to be listed on a major stock exchange such as NASDAQ or the Tokyo Stock Exchange within 2 to 3 years”, and in follow-up telephone calls between August and October 2008, Desmond Yue further told the 7^th plaintiff that “eBiz was going to be listed very soon and that any further investment would see a highly favourable return within a short period of time”.

239.  The 8^th plaintiff’s evidence is that at the face-to-face meeting in early March 2007, Desmond Yue orally represented that “[t]here is a one-of-a-kind opportunity to invest in eBiz, a Hong Kong company in the software and IT development business, which was on the brink of an IPO”.

240.  The 9^th plaintiff’s evidence is that at the dinner gatherings from November 2006 to April 2007, KC Lam and Desmond Yue orally represented that “[d]ue to these great and positive developments, the IPO of eBiz is even closer and even more likely than before”.

241.  The 11^th plaintiff’s evidence is that at a meeting in early December 2007, Desmond Yue and KC Lam represented that “[t]he IPO for eBiz is already at a very advanced stage, and eBiz was expected to be successfully listed in 3 to 6 months”.

242.  As pleaded, the IPO Prospects Misrepresentation was false because the company with the IPO prospects as described by the defendants did not exist as a matter of fact.  eBiz in fact had no or minimal business operations and generated no or minimal revenue, let alone profit.

243.  In closing, the case of falsity is put differently:

(1)  Catalist has a basic admission requirement that requires companies to have at least 12 months’ worth of working capital prior to listing.

(2)  It would appear that for that reason, in about March 2010, Collins Stewart requested for S$8 million to fulfil the working capital requirements. 

(3)  It is clear that eBiz never had such S$8 million prior to listing. 

(4)  While the contemporaneous documents show that KC Lam undertook to temporarily put up S$4 million in cash and S$4 million by a personal undertaking supported by shares, his preference was still to have rich and famous people come in prior to the IPO in order to meet the working capital requirement.  As late as in September 2010, Tommy Lai was still telling Collins Stewart that eBiz was discussing with rich and famous investors on pre-IPO investments, and if such investments were confirmed, KC Lam’s undertaking would no longer be necessary.

244.  It is therefore clear from the above that eBiz did require funds or assets from sources external to the company to meet the working capital requirements for a listing on Catalist.  Hence, when KC Lam, Desmond Yue and Tommy Lai told the plaintiffs that eBiz was good enough to successfully list on its own between 2006 to 2011, that was a misrepresentation.  The defendants made it knowingly, without belief in its truth, or recklessly, careless whether it be true or false.

The False IPO Notification

245.  Throughout the material period, the defendants painted a false picture of consistent incremental progress being made by eBiz towards an IPO.  See the following emails:

(1)  In an email as early as in June 2006, it is stated that a corporate consultant Tarian Capital Ptd Ltd has been appointed to prepare a draft timesheet and timetable for IPO and to perform due diligence.

(2)  The email dated 26 July 2006 which makes reference to the Tokyo Stock Exchange (see para 234 above).

(3)  The email dated 24 August 2006 which makes reference to the London Stock Exchange (see para 184(1) above).

(4)  An email in February 2008 refers to the Singapore Stock Exchange:

“we are in the process of appointing Stamford Law to take care listing in SGX”

(5)  An email in August 2008 refers to a meeting with MacQuarie Securities Pte Ltd and Stamford Law:

“I take the opportunity to update you of today meeting outcome of Macquarie Securities Pte Ltd (MacQ) and Stamford Law Corp (S Law) with eBizAnywhere Technologies Ltd at Stanford Law office.

MacQ and S agree to be eBiz’s Main Sponsor and Continuous Sponsor today, we expect the official mandate letters by next week…”

(6)  An email in February 2009 refers to the IPO being work in progress:

“IPO is in work in progress, it is manageable for us and eBiz Sg office at Suntec Towe 3 is ready by next month”

(7)  Materially, in an email dated 30 July 2009, it is stated:

“Collins Stewart Pte Ltd … is appointed as our IPO Sponsor with effect from 27th July 2009.

We are processing the IPO administration now and regarding the logistics of the Investment program, we will contact you very soon”

246.  July and August 2009 is a particularly significant turning point.  This is when the False IPO Notification happened.

247.  It is necessary to refer to how the term is defined in the pleadings.  Para 16 of the re-re-amended statement of claim reads:

“From July to September 2009, the 1^st to 3^rd Defendants procured the release of the Car Park Security by falsely misrepresenting that the IPO of the Company was imminent, that the Company’s IPO sponsor [Collins Stewart] had issued a notification of IPO, and that the Company was to be listed on the Catalist Board of the Singaporean Stock Exchange (“the False IPO Notification”).”

248.  This plea is supported by the master witness statement of the 4^th plaintiff, in which he said that the defendants misrepresented that the IPO for eBiz was a few months away, and that “Collins Stewart had issued an IPO notification”.  However, this last part of the evidence is later corrected in the supplemental witness statements of all the plaintiffs.  They now say that they were not using the term “False IPO Notification” in a technical sense as they do not have the expertise to use such technical terms.  They were not suggesting in the original witness statement that Collins Stewart had issued some kind of formal, technical notification. Rather, the term was simply used to describe the defendants’ conduct, namely their falsely representing that the IPO was scheduled to occur.

249.  This has been criticised by KC Lam and eBiz as a shifting of case or a “sea change” of the case.  The plaintiffs do not agree with that criticism.  In his closing submissions, Mr Chain says that when the pleadings and the witness statements of the plaintiffs are read as a whole, their case is that it was falsely represented to them in August 2009 that Collins Stewart had notified eBiz that it was definitively scheduled to be listed on Catalist.

250.  What happened in late August 2009 is that Desmond Yue sent an email to the plaintiffs in respect of each SPV on 26 August stating (and I quote below the one relating to Ocean Gate):

“With reference to the Loan Agreement dated 20th Nov 2006 with Sun Dynamic Limited, we are informed by the Borrower, Sun Dynamic Limited to convert all our rights under Clause 5.01(a)(ii) of the said Loan Agreement into right to receive Conversion Shares or choose to acquire carparks by 4 September 2009 (Please refer the attached file for your reference).”

251.  The email continued to say that a shareholders meeting would be held on 30 August. 

252.  The attachment to the email is a letter dated 22 August from Sun Dynamic addressed to Ocean Gate stating:

“We are writing pursuant to Clause 5.01(a)(i) of the captioned Loan Agreement to advise that we are informed by eBizAnywhere Technologies Limited that eBizAnywhere Technologies Limited has signed a Mandate Letter to appoint Collins Stewart Pte. Limited as full sponsor in connection with eBizAnywhere Technologies Limited’s proposed IPO on the Catalist in Singapore. The IPO time is scheduled to be in early 2010.

Hereby please let us know whether you want to convert all your rights under Clause 5.01(a)(ii) of the said Loan Agreement into the right to receive Conversion Shares or choose to acquire carparks by 4 September 2009.”

253.  I shall refer to this letter and identical letters sent to other SPVs below as “the notification letters from Sun Dynamic dated 22 August 2009”.

254.  Shareholders’ meetings of the SVPs were held on 30 August 2009.  Induced by the False IPO Notification, and believing that the IPO of eBiz was imminent, the plaintiffs all agreed to convert their loans into shares.  In addition, they consented to the SPVs signing termination agreements which had the effect of terminating the Loan Agreements and releasing the car park security back to Strong Man immediately (“the Termination Agreements”).

255.  Shortly after, the defendants arranged for the SPVs to be quickly dissolved in October and November 2009.

256.  I will return later to explain in detail why the plaintiffs contend that the False IPO Notification shows the fraudulent intent of the defendants.  In short, they say so because:

(1)  As of late August 2009, eBiz was not even close to an IPO.  The first kick-off meeting with Collins Stewart only took place later in October 2009.  Hence, when the defendants represented in August that the IPO was scheduled to occur, they were telling an outright lie.

(2)  The legal documentation signed and steps taken by the defendants were pre-planned, and deliberately engineered to unravel the Investment Structure.

(3)  The plaintiffs consented to the SPVs signing the Termination Agreements without full knowledge and understanding of their terms or their true effects.

The IPO exercise and further direct subscriptions

257.  At that time, the plaintiffs of course did not know about the truth of the matter. 

258.  In fact, the False IPO Notification had the effect of significantly bolstering the Fraudulent Misrepresentations which in turn induced some of them to make direct subscription of the shares after September 2009. 

259.  From August 2009 to February 2011, Desmond Yue emailed the plaintiffs from time to time giving them updates of the IPO progress.  However, the IPO dates kept being postponed.  Indicative timetables revising the listing dates were circulated.  In 2010, the IPO was delayed from March to mid-May, and then to mid-August, and, in November, Desmond Yue circulated a further revised timetable with the listing date pushed back to mid-April 2011.  That was the last timetable prepared by Collins Stewart.

260.  In the period from late February to August 2011, there were fewer emails from the defendants.  However, individual and group meetings were still arranged regularly.  The defendants never gave any proper explanation of the failure of eBiz to list in mid-April 2011.

261.  To some of the plaintiffs who were more active and vocal about the repeated delays, the defendants said that the blame lay with Collins Stewart who had wrongfully refused to file eBiz’s application.  The defendants then shifted to talking about a “restructuring exercise”, painting a rosy picture of alternative listing plans on other stock exchanges.  It was vaguely suggested that a restructuring was necessary, and eBiz’s business was to be restructured into a new listing vehicle, Zhong Yang Cloud Computing (“ZYCC”).  To other plaintiffs who were more passive, the defendants simply did not say anything.

262.  During this period, the defendants were still inviting the plaintiffs to make further direct subscriptions, purportedly as part of the “restructuring exercise”.  The 1^st, 4^th, 5^th, 6^th and 7^th plaintiffs made direct subscriptions in April 2011.

263.  In May 2011, Tommy Lai arranged for KC Lam to acquire eBiz Beijing and eBiz Nanjing for HK$1 million.  Tommy Lai explained that this was a set-off against an existing liability owed by eBiz to KC Lam.  None of the plaintiffs objected as they had been led to believe that this was part of the “restructuring exercise”.

264.  It was not until August 2011 that the Fraudulent Scheme began to unravel.

The exposure of the Fraudulent Scheme

265.  This is how the 4^th plaintiff describes in his master witness statement when the plaintiffs first found out that they had indeed been defrauded:

“90. In early August 2011, through individual and group meetings, the Defendants suddenly informed each of the Plaintiffs that “even after restructuring exercise” there would not be an IPO in the foreseeable future.

91. The Plaintiffs were shocked at this sudden change in position.  Although the Plaintiffs were unhappy with the many years of delay in eBiz proceeding to IPO and the failure of eBiz to list in mid-April 2011 according to the last timetable of Collins Stewart, from February 2011 to August 2011 the Defendants were still saying the IPO plans would continue pending a restructuring where the Plaintiffs would be allotted ZYCC shares for free.”

266.  However, by late September and early October 2011, the defendants had changed tack and started to say that the plaintiffs had to invest more monies in order to become shareholders of ZYCC, or else lose their previous investments.  It was then that the plaintiffs finally realised that they had been defrauded.  Angry emails were exchanged between the plaintiffs and KC Lam in October 2011.

267.  Before the exposure in October 2011, some of the plaintiffs had in fact received warnings about the true nature of the Fraudulent Scheme from a Miss Jessie Wong and Harry Tse.  I am not going to set out the evidence here as I do not consider that to be material in this case.

268.  After October 2011, the plaintiffs tried their best to find out what exactly had happened.  It is in this process that they managed to obtain from Desmond Yue the two large bags of documents before he later disappeared.  Police reports were made in Singapore and Hong Kong. Pre-action letters were issued to the defendants.  In September 2012, the plaintiffs commenced this action.

269.  The plaintiffs stress that at first they were not completely clear on the details of how they had been defrauded.  In his master witness statement, the 4^th plaintiff specifically said this:

“I should add this point that, as victims of the Fraudulent Scheme, in the early stages immediately after the Fraudulent Scheme had been exposed, the Plaintiffs were not completely clear on the details of how they had been defrauded. The sophistication of the Fraudulent Scheme speaks for itself. The Plaintiffs’ complaints in the police reports and pre-action letters, and indeed even in the original Statement of Claim, are more basic and rudimentary in form compared to the clear picture that has now emerged after discovery of documentary evidence, as I have endeavoured to set out in full in this witness statement.”

270.  I shall have to come back to this point because one of the major criticisms made by KC Lam and eBiz is that there are stark contradictions between the different versions of documents, eg, the original pleadings on the one hand and the latest pleadings on the other.

271.  With more documents at hand, it is now clear to the plaintiffs that the defendants knew all along that, given the No Revenue Reality and its weak (or non-existent) fundamentals, it was impossible or very unlikely for eBiz to be successfully listed unless a tycoon was persuaded to invest.  In this action, it is not the plaintiffs’ case that the defendants never intended for eBiz to succeed in an IPO.  Rather, their case is that it was a high-risk gamble of KC Lam to “hook” a tycoon investor by making use of their monies obtained through the Fraudulent Misrepresentations.  Had the high-risk gamble succeeded, eBiz would have been listed with handsome pay-offs.  That was the purpose behind the Fraudulent Scheme.

The False IPO Notification exemplifies the fraudulent intent

272.  I now return to the topic of the False IPO Notification and set out the plaintiffs’ case on how that exemplifies the defendants’ fraudulent intent when making the Fraudulent Misrepresentations.  What happened is also strong evidence showing that KC Lam was the mastermind of the Fraudulent Scheme, assisted by his subordinates Desmond Yue and Tommy Lai.

273.  The contemporaneous documents now available reveal the following sequence of events. 

274.  The first email in the sequence was dated 4 August 2009 from a lawyer at K&L Gates to Desmond Yue and Tommy Lai.  The lawyer attached a “discussion draft” of the Termination Agreements and asked for comments.  There are two matters which are of note in this email.

275.  First, the lawyer made reference to the definition of “Listing Price” in the draft agreement.  The relevance of this will become clear shortly.

276.  Secondly, he raised a query in para 3:

“I wish to raise one point which has not been raised in our previous discussion – the possibility that the IPO may not take place before the repayment date. The current draft does not give the borrower any expressed remedy. This may be viewed as an important issue since we are asking for the return of everything (title deeds etc.) upon the signing of the agreement. One convenient way of addressing this will be to add a provision to the effect that if the IPO does not take place before the repayment date the lender will be paid the loan amount plus an agreed premium. Let me know what you think.” (emphasis added)

277.  On 6 August, Desmond Yue by email requested Collins Stewart to prepare a letter and an indicative timetable “for the shareholder, Sun Dynamic Limited”.

278.  On 7 August, Collins Stewart provided a first draft as requested.  The draft letter stated that:

“Upon requests made by Mr Desmond Yue, we hereby confirm that [Collins Stewart] has been appointed by the Company on 27 July 2009 to act as full sponsor in connection with the Company’s proposed IPO on the Catalist, pursuant to a mandate letter dated 27 July 2009 (“Mandate Letter”), subject to the terms and conditions set out therein. …”

279.  On 13 August, Desmond Yue specifically requested Collins Stewart to remove the words “Upon requests made by Mr Desmond Yue” in the draft.

280.  On 18 August, in response, Collins Stewart revised the draft letter by using the words “At the request of the Company”.

281.  The notification letters of Sun Dynamic dated 22 August 2009 were issued to the SPVs.

282.  On 26 August, Desmond Yue sent emails to the investors, which were blind copied to KC Lam calling EGM meetings of the SPVs four days later to choose between conversion shares and the car parks. 

283.  On 30 August, the EGMs were held.  A speaking note was prepared by Desmond Yue recording what he had planned to say at the meeting (“the August 2009 speaking note”).  I reproduce some of the contents below:

“…

Decisions to choice the shares or carpark

…

This is a very special loan investment program which giving 5% dividend payment per year and HK Carpark assets as collateral.

But by now, it comes to the end. … because the shares plead to our holdings company… eBiz Anywhere Technologies Ltd is in processing of IPO.

…

… we are informed to choice Shares or Carpark before 4 Sep 2009.

…

Dr Kc Lam, Chairman of eBizAnywhere Technologies Ltd is here to welcome your Questions.

…

You are required to signed the EGM Form and Conversion Notice Form or Notice to Acquire Car parks

…

HK Lawyers will issue the legal documents as the Acceptance from our Decisions…, next, The Loan holding companies Director will proceed to Wind Up the Companies.

If no Objection from the shareholders before the End of the Meeting, I consider this RESOLUTION is passed.”

284.  The Singapore investors all elected conversion shares.

285.  On 5 September, Desmond Yue emailed KC Lam confirming that the SPVs had all exercised their rights to receive conversion shares.

286.  On the same day, Desmond Yue replied to the email of 4 August from the lawyer at K&L Gates saying that, with regard to the para 3 query, the lawyer should “check with KC”.

287.  On the following day, on this point, KC Lam replied in bold:

“Never paid the loan amount plus an agreed premium! If not listed within a year after signed the settlement, shares convert at HKD $300m valuation. We need time to build one order at least and allow some unpredictable delay of IPO not because of our fault.”

288.  On 8 September, by email, the lawyer circulated revised drafts of the Termination Agreements.  At the end of the email, the lawyer make the remark that these drafts were prepared on the basis that the terms reflected the current intention and agreement between the relevant parties.

289.  Separately, between 5 and 8 September, there was a chain of emails among Desmond Yue, Tommy Lai and KC Lam which set out the defendants’ plan to set the “Termination Day” to be 11 September 2009 and the need for a “comfort letter” from Sun Dynamic.

290.  On 9 and 10 September, there was a chain of emails where Desmond Yue and Tommy Lai worked together to prepare various board resolutions for the Termination Agreements and the release of the car parks. Tommy Lai was the one who prepared the board resolutions.

291.  On 10 September, the finalised version of the Termination Agreements were sent to Desmond Yue by Tommy Lai for the meeting of KC Lam and Desmond Yue the following day.

292.  On 11 September, the scheduled “Termination Day”, various documents such as the Termination Agreements were signed by the directors of the SPVs.  The 5^th and 11^th plaintiffs were directors of Liberty Star and they were asked to sign the documentation.  Both of them now say that they signed without having proper sight of the contents. 

293.  On the same day, the comfort letters was sent by KC Lam on behalf of Sun Dynamic to the SPVs. 

294.  In October and November, all the SPVs were dissolved.  This was done under the instructions of KC Lam.

295.  The plaintiffs have a number of complaints over the above events. 

296.  First, KC Lam intentionally engineered a wholly artificial justification as a basis for Sun Dynamic to issue the notification letters dated 22 August 2009.  It was at the specific request of Desmond Yue that Collins Stewart issued a draft preliminary IPO timetable.  Collins Stewart took the effort to make it clear that it only did so pursuant to a request.  At that time, the first IPO kick-off meeting had not even taken place.  (It was only held later on 6 October 2009.)  The draft indicative timetable was the only basis Sun Dynamic could possibly rely on to issue the notification pursuant to clause 5.01 of the Loan Agreements.  That clause however provided that Sun Dynamic should issue a notice if “a Qualified Event is scheduled to occur before the Repayment Date”.  Here, the mere existence of a draft indicative IPO timetable clearly cannot count as the IPO being “scheduled to occur”.

297.  Secondly, the plaintiffs say that the False IPO Notification was pre-planned and done under the instructions of KC Lam for the deliberate purpose of stripping away the watertight protections the Investment Structure provided.  There is otherwise no other explanation for what had happened.

298.  Critically, the Termination Agreements and the winding up of the SPVs altered and superseded the elaborate contractual mechanism already provided for under the Loan Agreements in two material respects. 

(1)  Even though the IPO had not yet taken place, the title deeds of the car parks were to be immediately delivered back to Strong Man.  (And they were in fact so delivered.)  This is to be contrasted with clause 5.03 of the Loan Agreements which provided that the title deeds were only to be released in exchange for the conversion shares. 

(2)  The revival clause in clause 5.04 was superseded.  As revealed in the August 2009 speaking note, it was already contemplated that the SPVs were to be wound up after the conversion.  They were in fact wound up shortly afterwards. 

299.  The para 3 query raised by the K&L Gates lawyer and KC Lam’s reply are telling.  The lawyer highlighted that Strong Man “are asking for the return of everything (title deeds etc.)” in the Termination Agreements and hence he suggested that the SPVs should be repaid the loans and premium if the IPO does not occur.  To this, KC Lam replied, “Never paid the loan amount plus an agreed premium!”

300.  Thirdly, the plaintiffs consented to the arrangements without full appreciation of the ramifications of the documents, given the great degree of trust reposed in KC Lam in particular.  The contemporaneous correspondence does not show that the arrangements were ever explained to the plaintiffs.

The plaintiffs’ prior investment experiences

301.  To complete the plaintiffs’ factual case, I shall lastly set out the prior investment experiences of each of the plaintiffs.

302.  The 1^st plaintiff has limited investment experience and financial sophistication with a low risk appetite. She has a limited understanding of the workings of the stock market and considers herself as risk averse when it comes to investments.

303.  The 2^nd plaintiff has limited investment experience and financial sophistication with a low risk appetite. He seldom bought shares from the Singapore Stock Exchange.  Before eBiz, he had never made any pre-IPO investments.

304.  The 3^rd plaintiff has minimal investment experience and financial sophistication with a low risk appetite. Her experience is limited to buying and selling blue chip shares on the Singapore Stock Exchange.  Before eBiz, she had never made any risky investments such as pre-IPO investments or structured or derivative financial products.

305.  The 4^th plaintiff has limited insight and experience in investment.  He only bought shares on the Singapore stock market to hold for the long term.  He has never made any investment in structured or derivative financial products.  He only once made a pre-IPO investment in 2004 by way of convertible loan in a private company, which was subsequently listed on the Singapore Stock Exchange.

306.  The 5^th plaintiff has limited financial sophistication with a low risk appetite.  He is generally risk averse and conservative with a preference for blue chip companies to hold for the long term.  Before eBiz, he had never made any risky investments such as pre-IPO investments or structured or derivative financial products.

307.  The 6^th plaintiff has limited investment experience and limited financial sophistication with a low risk appetite.  He occasionally bought and sold shares on the Singapore Stock Exchange.  Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products.

308.  The 7^th plaintiff has some investment experience.  He occasionally purchased stocks.  Prior to eBiz, he had made two pre-IPO investments.

309.  The 8^th plaintiff has limited investment experience and financial sophistication with a low risk appetite. He only bought shares on the Singapore Stock Exchange to hold for the long term.  Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products.

310.  The 9^th plaintiff has limited investment experience and financial sophistication with a low risk appetite. She has bought some shares from the Singapore Stock Exchange before through Desmond Yue, usually at his recommendation.  Before eBiz, she had never made any pre-IPO investments or invested in structured or derivative financial products.

311.  The 10^th plaintiff has limited investment experience and financial sophistication with a low risk appetite. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products.

312.  The 11^th plaintiff has limited investment experience and financial sophistication with a low risk appetite. He only bought shares of blue chip companies or government utilities companies on the Singapore Stock Exchange, using his public retirement funds.  He chose those shares for their stability as he considers himself to be risk averse. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products.

Reliefs against KC Lam and eBiz

313.  The plaintiffs invite the court to find that KC Lam and eBiz are liable as joint tortfeasors acting in concert with Desmond Yue and Tommy Lai pursuant to the common design of the Fraudulent Scheme.  As such, KC Lam and eBiz should be liable for the losses flowing from all the Fraudulent Misrepresentations, whether or not the representations were made personally by KC Lam.  Hence, KC Lam and eBiz should be ordered to pay damages to the plaintiffs in the sum of HK$23,816,058.38 and S$100,000, these sums together representing the losses suffered by all the plaintiffs.

314.  Alternatively, if the court does not find in favour of the joint tortfeasorship argument, KC Lam should be liable for the Fraudulent Misrepresentations which were made by him personally.  For this, KC Lam and eBiz should jointly and/or severally pay a total sum of HK$20,066,058.38 and S$100,000.

The plaintiffs’ case against Tommy Lai

315.  I now set out the plaintiffs’ case against Tommy Lai.

316.  First, Tommy Lai had made Fraudulent Misrepresentations to three of the plaintiffs to induce them to invest.  The three plaintiffs are the 1^st, 5^th and 7^th plaintiffs. 

317.  Second, KC Lam, Desmond Yue and Tommy Lai were jointly acting in concert pursuant to the common design of the Fraudulent Scheme.  More specifically:

(1)  After he joined eBiz in April 2007, Tommy Lai became aware of the Fraudulent Scheme being carried out by KC Lam and Desmond Yue.  He then joined the Fraudulent Scheme and assisted KC Lam in it.

(2)  He knowingly or recklessly made the Fraudulent Misrepresentations to the 1^st, 5^th and 7^th plaintiffs.

(3)  Tommy Lai clearly had an incentive to assist KC Lam to get eBiz listed, as he stood to gain over S$14 million from his 7.14% shareholding, for which he only paid less than HK$12,000.

(4)  He played an instrumental role in the unravelling of the Investment Structure.  He was extensively involved in the drafting of the Termination Agreements from the very beginning.  K&L Gates sent the very first draft of the Termination Agreements Tommy Lai and ask for his comments.  Tommy Lai was tasked to prepare the board resolutions at a later time.  He must have clearly understood the effect of the Termination Agreements.  He was also responsible for drafting the comfort letters. 

(5)  He was also heavily involved in the preparation of the Grant Sherman reports.  He was responsible for preparing and providing the information about eBiz to Grant Sherman.  He must have been acutely aware that the sales projection provided to Grant Sherman did not have a proper factual basis.

318.  For these reasons, even though Tommy Lai only came in the picture later, he rendered acts of assistance to maintain and prolong the Fraudulent Scheme.  The plaintiffs invite the court to find him liable as a joint tortfeasor acting in concert with KC Lam and Desmond Yue pursuant to the common design of the Fraudulent Scheme.  As such, Tommy Lai should be liable for all losses flowing from the Fraudulent Misrepresentations, including those representations which were not made by him personally.  He should be ordered to pay the same sum as stated in para 313 above.

319.  Alternatively, if the court does not find in favour of the joint tortfeasorship argument, Tommy Lai should be liable for the Fraudulent Misrepresentations personally made by him to the 1^st, 5^th and 7^th plaintiffs.  For this, he should be ordered to pay a total sum of HK$10,301,698.38.

KC LAM AND EBIZ’S CASE

320.  I shall set out the case of KC Lam and eBiz by, first, giving a broadly chronological account of events from their perspective and, secondly, setting forth their specific responses to the plaintiffs’ case.

KC Lam’s background

321.  KC Lam was born and brought up in Hong Kong.  He attended Queen’s College, a well-known local secondary school.  Upon graduation, he joined the workforce owing to family financial obligations.  He built up his wealth from his business as a real estate agent.  His business grew in the 1990s when the property market in Hong Kong just started to boom. As his business extended, he acquired wide business networks in and out of Hong Kong.

322.  As he builds up his personal wealth, due to his belief in Buddhism and his desire to repay society, he makes donations to various causes from time to time, including to education institutes and universities all over the world.  His contributions have been recognised by the different institutes and many of them have granted him honorary academic qualifications or positions. 

323.  In early 2000, KC Lam had experience in investing and raising capital in Ninetowns, a start-up software company.  He had introduced strategic investors to Ninetowns to support its business and enable it to be listed on the NASDAQ stock market in 2004.  The investors whom he had introduced were Mr Lee Tat Man, the younger brother of Dr Lee Shau Kee, a well-known Hong Kong tycoon, and Mr DC Lee, who was in good relationship with AIA Taiwan, which later became the 25% shareholder of Ninetowns.  On account of his effort and contribution, KC Lam was allotted shares in Ninetowns.

324.  The successful experience in Ninetowns gave KC Lam an insight that start-up software development companies had a huge potential.  And that can be said to be the background leading eventually to his acquisition of WebExpress.  He said in his written statement:

“Once a start-up company develops a software which becomes popular, the return to investment could be exponential. It is because of this experience, I started to look out for start-up software company with growth potential for investment.”

WebExpress

325.  WebExpress is a user-friendly and low-cost business to business trading software.  It enables users to build their own websites easily within hours and hold the websites in their own computers.  It also enables the users’ product information to be updated continuously and provides a platform for business to business online services.

326.  After obtaining a due diligence evaluation report from CCID Consulting Company Ltd, a research and consultancy firm in the Mainland, dated September 2004, KC Lam through eBiz acquired WebExpress in late 2004.

327.  CCID Consulting conducted an evaluation of the market potential of WebExpress in the Mainland.  It concluded that the software had great attractions for commercial enterprises, and had huge growth potential. It estimated a 22.91% compound growth rate reaching a market scale of RMB100 million in the Mainland over 2004 to 2007.

“3、  ... 賽迪顧問預測，“環貿通”電子商務軟件在2004-2007年將以較快的速度增長，年複合增長率達到22.91%。到2007年市場規模將超過10億元。

…

5、 具有“量身訂做網站”功能、“信息智能搜索”功能及一系列交互服務功能的“環貿通”電子商務軟件對企業有強大的吸引力，在未來幾年內將有巨大的市場增長潛力” [3]

328.  The software had great growth potential because the vast market for SMEs in the Mainland to build their own websites for e-commerce was still largely untapped at the time.  In this action, KC Lam and eBiz rely on the following statistics to demonstrate that huge potential:

(1)  The total number of SMEs in the Mainland up to 2006 was over 42 million.  (The figure is extracted from a document published by the Small and Medium Enterprises Division of National Development and Reform Commission of the People’s Republic of China.)

(2)  95% of these SMEs had the need to build their own websites, and only approximately 10% had built their own websites.  (The figures are extracted from a report dated October 2007 prepared by data.ChinaByte.com.)

329.  Online e-commerce functions are commonplace today.  But that was not the case in 2004.  It is KC Lam and eBiz’s contention that WebExpress was unique and ground-breaking at the time.  The following are some of the milestone events:

(1)  In 2005, the first version of the software was officially launched.  At that time, it was sold in a box-set, with a router included (as opposed to online).

(2)  In April 2008, the online version was launched. It was downloadable without the need to use a specifically programmed router.

(3)  In late 2010, an e-business package by the name of Globalbiz (co-branded “CCPIT WebExpress”) including domain name and corporate mail box was launched. 

330.  The software has won numerous awards, including:

(1)  the Golden Software Award 2006 awarded by China Software Industry Associations/Software World in June 2006;

(2)  the Innovation Award for the 10^th International Software Expo of China held in Beijing awarded by the International Software Expo of China and Technology Discussion Committee in June 2006; and

(3)  the Golden Software Award for China Software Industry 25 years awarded by China Software Industry Associations/Software World in December 2009.

eBiz

331.  As Executive Chairman and Chief Executive Officer of eBiz, KC Lam formulated the overall corporate planning and business strategies of eBiz.  Tommy Lai, as the Chief Financial Officer and executive director, was mainly responsible for all financial matters and working closely with the professional parties during the IPO exercise.  Desmond Yue was mainly responsible for investor relations, particularly communication and liaison with Singapore investors, and business development.  Harry Tse was mainly responsible for sales and marketing and overseeing the day-to-day operations in the Mainland and the research and development of WebExpress.

332.  eBiz Nanjing and eBiz Beijing undertook software research and development.  The main operation was in eBiz Beijing after it was set up in early 2006.  The office had around 50 employees comprising mainly software engineers.

333.  Since 2005, eBiz had been actively seeking collaborations with strategic partners as KC Lam was of the view that doing so would enable it to raise the profile of WebExpress and to garner greater market acceptance for the software.  It was therefore eBiz’s strategy to enter into agreements with key players in the field of information technology and other related businesses, particularly in Hong Kong and the Mainland.

334.  eBiz Nanjing signed an agreement with Digital China entitled “建網快車 通用軟件 五年獨家總代理協議書” and dated 30 September 2005.  Digital China agreed to become the sole agent in marketing WebExpress for eBiz in the Mainland.  At that time, Digital China was the biggest software distributor in the Mainland.

335.  eBiz Nanjing signed an agreement with Lenovo entitled “聯想 環貿通　合作意向書” and dated 14 October 2005 under which WebExpress was bundled with Lenovo’s desktop computer “Yang Tin Series” to be launched in the Mainland.

336.  There are other strategic partners lined up by eBiz in the following years.  While it may slightly disturb the chronological order of the events set out in this section, it would be convenient to set them out here in one go:

(1)  In March 2007, eBiz was appointed by CCPIT to construct the largest PRC database and search engine for commercial products.

(2)  In December 2007, eBiz was appointed as an accredited domain name registrar, with the ability to offer registration of “.cn” websites which were approved by China Internet Network Information Centre (“CNNIC”).  CNNIC is an administrative agency responsible for operating and administering domain name registry in the Mainland.  There were only 60 domain name registrars accredited by CNNIC.

(3)  In December 2009, eBiz formed a joint venture company with the subsidiary of CCPIT in Hong Kong to promote the use of WebExpress in the Mainland.  A memorandum was signed on 22 November 2009 in relation to a 10-year collaboration to promote the use of the WebExpress software among SMEs in the Mainland.

(4)  In March 2010, eBiz Beijing entered into a cooperation agreement with the China-ASEAN Association to develop an ASEAN version of WebExpress and operate the “ASEANChina.net” B2B portal, which were intended to be the e-commerce platform for ASEAN suppliers and Mainland buyers.

(5)  In July 2010, eBiz entered into the collaboration agreement with Hutchison GCL allowing eBiz to promote, market and/or sell Hutchison telecom services to its customers.  (That is the collaboration agreement referred to in para 28(3) above.)

337.  KC Lam envisaged that eBiz, like other start-up IT companies, would require substantial funding to support its capital expenditure, particularly for large-scale sales and marketing programmes.  He therefore started to formulate the plan for eBiz to get an IPO listing.  He personally made substantial investments into eBiz.

338.  Prior to the plaintiffs joining as investors, KC Lam had already secured some investors to become shareholders of eBiz.  One of them was Ho Hau Wong, who became a shareholder (indirectly through a company) in around mid-2005.  He presently holds around 6.38% of shares in eBiz.

Desmond Yue

339.  KC Lam was introduced to Desmond Yue through a business contact in Singapore.  At that time, Desmond Yue held the position of Vice President of the Dealing Department of OCBC.  In May 2006, eBiz appointed Desmond Yue as its adviser.  He was to advise on eBiz’s proposed IPO listing, to identify and introduce potential investors, and to assist in the IPO listing.  Desmond Yue would receive an incentive commission of 6.5% of the amount raised based on HK$23 million fundraising and 5% of eBiz’s paid up capital shares upon completion of the fundraising exercise.

340.  Like in the plaintiffs’ case, Desmond Yue features prominently in KC Lam and eBiz’s case, according to which it was primarily Desmond Yue who communicated with the plaintiffs.  KC Lam would give him information about eBiz and keep him updated of the latest development.  He would give hard copies of the documents relating to eBiz to Desmond Yue.  Desmond Yue would then divulge proper information in relation to the investment in eBiz to the plaintiffs. 

341.  The hard copy documents included audited financial reports and business appraisal reports which Desmond Yue would give to the plaintiffs.  While KC Lam himself was not privy to the communications between Desmond Yue and the plaintiffs, based on the contemporaneous documents, he invites the court to make a finding to that effect.  If so found, KC Lam then says that the contents of those documents would go to contradict the plaintiffs’ case.

342.  Going back to the initial stage, ie around mid-2006, it was Desmond Yue who approached the plaintiffs on his own without the involvement of KC Lam, and KC Lam had no knowledge of the emails sent by Desmond Yue to the plaintiffs (not copied to him) at the time.

343.  As regards the documents or presentation materials shown or sent by Desmond Yue to the plaintiffs, KC Lam now says that he was not involved at all in respect of these documents:

“In view of Mr. Desmond Yue’s role in his introduction of potential investors to eBiz, I did not give any instruction to Mr. Desmond Yue in relation to the preparation of any presentation material to potential investors and Mr. Desmond Yue had liberty and free-hand to prepare presentation material if he considered fit to do so. Indeed, Mr. Desmond Yue did not produce any draft documents or presentation materials prepared by him for business development purpose to me for my review prior to his circulation to the Singapore Investors, as most of the Singapore Investors and potential investors approached by him were his pre-existing clients and/or had developed trust and confidence on him through their previous business dealings.”

344.  This piece of evidence would be relevant to the attribution point.

345.  After the initial introduction of Desmond Yue, KC Lam would meet the plaintiffs from time to time.  However, whenever he did so, Desmond Yue would be there as well.  KC Lam seldom communicated with the Singapore investors and that was in part due to language issues, as Hokkien or English with a Singaporean accent may be used to communicate.  That was indeed part of the services that Desmond Yue was engaged to perform.  Before Desmond Yue left OCBC to join eBiz in January 2009, he was plainly acting on his own initiatives and ideas, which is the rationale for engaging him in the first place. Contrary to what the plaintiffs now contend, Desmond Yue was not acting as KC Lam’s subordinate to carry out his instructions.  Nor was Desmond Yue acting as a mere coordinator or messenger.

eBiz was presented as an IT start-up with potential but no track record

346.  The core contention of KC Lam and eBiz in this action is that eBiz was a typical IT start-up and any investment in it was a “high risk and high return” one.  That is how the investment opportunity was presented to the plaintiffs.  And they knew about it from the very beginning.

347.  The investments would yield high returns if the potential of WebExpress could be materialised.  However, to achieve that, substantial funds would first have to be expended on research and development and building up user base.  The investments carried high risks as the success of the software would depend on many factors and subject to uncertainties, some of which were beyond the control of eBiz.

348.  This is how KC Lam put it in his witness statements:

“The attraction and the investment opportunity to investors at the start-up stage was in the potential of eBiz achieving critical mass users for the software product in the market, not in any known profitability during the start-up stage.”

349.  At meetings with the plaintiffs, KC Lam introduced the potential of eBiz as a start-up IT business with software development as its key business.  He admitted to them that eBiz had limited track record of business turnover but its attraction would lie in its business potential.  Throughout the material period, when KC Lam met with the plaintiffs in meetings, he would keep them informed of the business status and progress of eBiz.  The plaintiffs would often make in-depth enquiries with him and other management of eBiz and one major area of interest to them was the revenue of eBiz.  On those occasions, KC Lam would inform them that eBiz had only minimal sales and revenue and it would need to generate funding from the intended IPO in order to implement aggressive sales and marketing programmes to boost its sales and revenue.

350.  KC Lam and eBiz rely on a number of emails and documents sent by Desmond Yue to say that the plaintiffs had all along known about eBiz’s lack of revenue, and the risks associated with investments in the company.  They are documents generated from August to October 2006.  What was happening then was that Desmond Yue was liaising with the plaintiffs in respect of the signing of the loan documentation for the Ocean Gate round of investment.

351.  On 18 August 2006, Desmond Yue sent an email to an address which appears to be the email address of the 6^th plaintiff.  The email was entitled “Listing Markets Report”.  It reproduced certain contents of “Grant Thornton’s 2006 Global New Markets Guide (For Emerging Firms)” as of December 2005, setting out information of the market capitalisation of a number of stock exchanges.  Notably, “HK/GEM” and “SG/Sesdaq” were included.  These appear to be references to the secondary boards in Hong Kong and Singapore respectively.  It is KC Lam and eBiz’s contention that any reader of the email would understand that the intention was to list eBiz as an emerging firm in one of these secondary markets.

352.  On the same day, Desmond Yue sent an email to the 6^th plaintiff’s Hotmail address.  It read:

“Dear eBiz Investors, we are in discussion with the Corp Lawyer Prseton Gate on the listing matters. Regarding your investment documents which will be ready by next month for signing.

Good Day

Desmond Yue”

353.  On 24 August 2006, Desmond Yue sent an email to the 6^th plaintiff’s Hotmail address.  This is the email referred to in para 184(1) above.  The point to highlight here is that at the end of the email, Desmond Yue wrote:

“And eBiz investment documents will be ready by next month.”

354.  On 28 September 2006, Desmond Yue sent an email to the group email address.  (I shall call this “the 28 September 2006 group email”.)  It read:

“Dear eBiz Investors, as the Corp Lawyer, Preston Gates is waiting for the Financial Statements from the Auditor, Deloitte and Touche. The Auditor reports shall be ready within two weeks, we expect all the Documents shall be ready in 2nd week of Oct and meet up with Singapore Rep Lawyer shall be in 3rd week of OCT.

As we handle this Pre-IPO investment program with few professional bodies, we appreciate and seek your common understanding.

Thank you

Best Regards

Desmond Yue Yew Meng” (emphasis added)

355.  On 17 October 2006, Desmond Yue sent an email to the group email address, saying that Preston Gates had appointed UniLegal to handle the placement administration in Singapore and that the investments documents would be ready by the following week.

356.  On 25 October 2006, Desmond Yue sent an email to the group email address saying that all the documents would be ready the following week.

357.  On 31 October 2006, Desmond Yue sent an email to the group email address saying that there was a delay and the loan documents should be expected to be ready later.

358.  On the same day, Desmond Yue sent an email to the 6^th plaintiff’s Hotmail address.  This is one of the most heavily relied on documents in KC Lam and eBiz’s case.  I shall call it “the 31 October 2006 email”.  It read:

“Dear eBiz Investor, FYI,

there is an offshore company, Ocean Gate to be set up for all the investors to hold the Collateral Assets, the lawyer will take care… This is the first tranche of HKD 16mln exercise, and there is a second tranche ( partially sold ) exercise in the range of HKD 8mln to 20 mln.

We look forward to seeing you at this Thu afternoon at UniLegal LLC.

Cheers

Good Day

Desmond Yue

c/c Justin”

359.  The significance of this email is that it has six attachments.  It is common ground what those attachments are.  Most materially, the following were attached:

(1)  the 2005 audited statements; and

(2)  eBiz Nanjing’s management accounts as of June 2006 (“the June 2006 management accounts”).

360.  Even though the 31 October 2006 email was sent to the 6^th plaintiff’s Hotmail address, KC Lam and eBiz invite the court to find that emails of the same or similar contents accompanied by the same attachments were sent to the other plaintiffs at about the same time. This is because it can be readily seen that the above emails form a series of emails concerning the Ocean Gate investment, and the 31 October 2006 email obviously formed part of that series as its purpose was also to give information about the Ocean Gate investment and there is no reason why Desmond Yue would only send such information to the 6^th plaintiff but not the others.  

361.  The 2005 audited statements show that eBiz had no revenue as of the year end whereas the June 2006 management accounts show that eBiz Nanjing only recorded very modest net sales of about RMB300,000 and substantial expenses of over RMB 2.5 million as of June 2006.  Hence, by sending these attachments to the plaintiffs, eBiz had made known to them its lack of revenue at the time.

362.  In around June 2007, KC Lam invited the Singapore investors to visit eBiz Beijing’s office.  He did so so that they would have an opportunity to more fully understand eBiz’s business operation, and to make an informed decision regarding investing in eBiz.  He bore their airfare and accommodation expenses upon their request.  The 1^st, 2^nd, 3^rd, 4^th, 8^th, 9^th and 10^th plaintiffs flew to Beijing.

363.  During the site visit, KC Lam gave a detailed presentation about eBiz.  He introduced to the attendees Tommy Lai who joined eBiz in April that year.  That was the occasion when many of the investors met him for the first time.  KC Lam explained that eBiz began as a research and development house and it was still in its early years with modest revenue and profit.  He also reminded the plaintiffs that any investment in eBiz involved high risk and potentially high return.

364.  During the site visit, Harry Tse, who was the inventor of WebExpress, also gave detailed explanation about the software and demonstrated its features.

365.  At the material times, KC Lam orally informed some of the plaintiffs of the valuation figures of eBiz based on the BI Appraisals report and the first and second Grant Sherman reports.  Copies of the reports were made available to the plaintiffs.  Hard copies were also made available when KC Lam gave presentations to them.

366.  The reports all expressly reminded the readers of the considerable risks involved in investing in eBiz.

367.  The BI Appraisals report contained a section called “Risk Factors”:

“Like any technology still in its infancy, Internet businesses have their own set of growing problems. Because the Internet’s ultimate potential is still unknown, many Internet-based business risks are only beginning to surface.”

368.  The first Grant Sherman report also contained a “Risk Factor” section.  It expressly stated that eBiz had just launched its WebExpress services which, according to KC Lam, was a reference to the online version of the software, and was still in “the initial stage of marketing”. The section went on to highlight that the risk associated with the company was one typically associated with a start-up business:

“The readers of this report should note that the Company has just soft launched its WebExpress services and it is still in the initial stage of marketing. The risk associated with the appraised business is one typically associated with a start-up business, mainly related to the successful establishment and implementation of the business plan. Although the Company has a competent management team in place, its marketing strategies and the public acceptance of the Company’s WebExpress and related online services remain to be the key factors to the success of the Company. Therefore, the readers of this report should carefully consider the start-up nature of the business and the risks associated.” (emphasis added)

369.  The second Grant Sherman report contained a similar passage in the “Risk Factor” section.

370.  Given the above contents of the valuation reports, the plaintiffs well knew that eBiz was still “in its infancy” stage and was a start-up business.

The Investment Structure

371.  Because of the inherent risks involved, in around late 2006, KC Lam agreed with the plaintiffs to put in place what he called “the Convertible Debt-to-Equity Arrangement”, which is the Investment Structure referred to in the plaintiffs’ case.  This was to give them more time to assess the business potential of eBiz and the option to withdraw if they so wished.  The arrangement would provide some hedging against the inherent risks in investing in start-up companies like eBiz.

372.  This was therefore a “risk hedging” arrangement. It corroborates the high-risk nature of the pre-IPO investment into eBiz.  Precisely because of the high risk element, KC Lam agreed with the plaintiffs to put in place this hedging arrangement.

373.  This arrangement is to be contrasted with how previous investors had advanced monies to eBiz.  For instance, Ho Hau Wong directly subscribed for shares in eBiz without the benefit of this risk hedging arrangement.

374.  In his oral testimony, KC Lam revealed for the first time that it was in fact the plaintiffs who came up with the risk hedging arrangement.  As the plaintiffs considered the pre-IPO investment to be risky and they did not know anything about KC Lam, they suggested that a convertible loan arrangement be put in place. 

KC Lam and eBiz took steps towards an IPO

375.  Since mid-2006, KC Lam had been exploring different options for the listing of eBiz.  He mainly focused on finding a suitable stock exchange which would allow start-up IT companies like eBiz with no track record to be listed.  With this in mind, he looked into the possibility of listing on the Tokyo Stock Exchange and the AIM board of the London Stock Exchange.  He also met with various investment houses who might act as potential underwriters for the proposed IPO.

376.  In around 2008, KC Lam was introduced by Desmond Yue to Ms Lee Suet Fern, the Senior Partner of Stamford Law.  (Lee is the wife of Mr Lee Hsien Yang, who is one of the sons of the late Mr Lee Kuan Yew, the late former Prime Minister of Singapore.)  KC Lam was informed by Lee that the Catalist board in Singapore was recently established in late 2007 to cater for the needs of start-up, high-growth companies like eBiz and there is no minimum operating track record, profit or share capital requirement for listing on the Catalist.

377.  KC Lam considered that Catalist was a good match for eBiz.  He started to reach out to Macquarie Securities Pte Ltd to explore appointing it as eBiz’s initial sponsor for the listing.  (In the end, Collins Stewart was appointed as KC Lam considered them to be more suitable.)

378.  In mid-2008, eBiz appointed Stamford Law as its solicitors for the intended IPO on the Catalist board. 

379.  Through Stamford Law, KC Lam was introduced to Collins Stewart, who was one of the few pioneer full sponsors approved by the Singapore Stock Exchange. 

380.  In a meeting in the summer of 2009, KC Lam met with Mr Alex Tan, the Chief Executive Officer of Collins Stewart.  KC Lam mentioned clearly to Tan that eBiz did not have track record of revenue and it required funding from the IPO in order to expand its sales and marketing programmes.  Tan reassured him that there was no minimum track record requirement for Catalist.

381.  Other steps which eBiz took in the meantime to achieve an IPO included:

(1)  eBiz engaged Celestial to prepare a cash flow forecast for valuation purposes.

(2)  eBiz engaged Macquarie Capital to prepare an IPO feasibility study report in about December 2008. 

eBiz appointed Collins Stewart for the IPO and the investors converted their loans into eBiz shares

382.  By a mandate letter dated 27 July 2009, eBiz appointed Collins Stewart to be its full sponsor for its proposed listing on Catalist.

383.  Before that, at one of the meetings, Collins Stewart orally advised KC Lam that before eBiz could be listed, the actual position of its shareholdings had to be confirmed.  It means that the investors under the Investment Structure had to decide whether they would exercise their options to convert their loans into shares in eBiz. 

384.  That is the background leading to the issue of the notification letters from Sun Dynamic dated 22 August 2009.  See para 252 above.  Subsequent to that, the plaintiffs signed conversion notices and gave consent to the SPVs to return the title deeds of the car parks to Strong Man and to sign the Termination Agreements.  KC Lam and eBiz stress that in doing so, the plaintiffs made their independent judgment and made their own commercial decisions.  Given their background, they knew or ought to have known that there were risks associated with the investment decisions made by them. They were also advised to seek independent legal advice and to obtain separate legal representation.

385.  In his oral testimony, KC Lam said that the atmosphere at that time was that everyone was expecting a smooth sail to the IPO.  (Tommy Lai gave similar evidence.)

386.  By letters dated 11 September 2009 addressed to each of the shareholders of the SPVs, including the 1^st, 2^nd, 3^rd, 4^th, 5^th, 7^th, 8^th, 9^th, and 11^th plaintiffs (ie the comfort letters referred to in para 293 above), KC Lam, acting for and on behalf of Sun Dynamic, set out the formula for conversion and stated that if the IPO listing did not take place before 11 September 2010, the individual loan amount from these shareholders would be converted into eBiz’s shares at 50% of eBiz’s valuation of HK$600 million.  The letter (addressed to Radiant Sun) stated:

“If IPO does not take place before 11 September 2010, the Loan Amount will be converted into ETL’s shares at 50% of ETL’s valuation of HK$600 million. On the conversion day, Radiant Sun’s percentage of shareholding in ETL is equal to : Loan Amount ÷ HK$300 million x 100%.”

387.  It will be recalled that the plaintiffs now highlight that the arrangements put in place in August 2009 represents two departures from the original contractual mechanism – first, the title deeds of the car parks were returned to Strong Man immediately, as opposed to in exchange for the conversion shares; second, the revival clause no longer applied such that if the IPO did not happen, the Loan Agreements would not be revived and there would be no repayment of the loans. 

388.  When asked about these departures in cross-examination, KC Lam’s response was that the Termination Agreements and the comfort letters constituted a new commercial arrangement on new terms. These transactions involved commercial give-and-take by both the plaintiffs and KC Lam to the benefit of both sides.  KC Lam revealed the following for the first time in this action.

(1)  As the quid pro quo for the plaintiffs giving up the car parks as security, they obtained the benefit of calculating the number of conversion shares on the basis of the listing price (provided for in clause 2.2(b) of the Termination Agreements) instead of the opening price (provided for in clause 5.02(b)(i) of the Loan Agreements), and the right to convert shares at 50% of the valuation of HK$600 million if the listing did not take place within one year (provided for in the comfort letters).

(2)  He explained that the change from opening price to listing price was more favourable to the plaintiffs.  This is because in an IPO, usually, there would be a demand and that demand would drive up the opening price to above the listing price.  When the calculation was based on the lower listing price, the plaintiffs would be entitled to more shares upon conversion.

(3)  As to the conversion at 50% of the valuation of HK$600 million, that was what Desmond Yue requested on behalf of himself and the other investors.

389.  As to the winding up of the SPVs shortly afterwards, it was Desmond Yue and the plaintiffs themselves who decided to wind them up.  KC Lam did not play any role in this arrangement, which was an internal matter for the SPVs.  What weighed on the plaintiffs’ mind then was the chance to earn significant profit from the IPO.  The “money” lies with the shares with the IPO being very likely, not with the car parks.  

The IPO exercise and further direct subscriptions

390.  After the appointment of Collins Stewart, eBiz went ahead with the IPO work.  It worked together with Collins Stewart, Stamford Law and a number of professional parties.  It was primarily Tommy Lai who liaised with the professional parties.  There is a mass of contemporaneous documents generated during this period, ie from around October 2009 up to around November 2010.  They include a vast volume of emails and drafts of the IPO offering document.  I should say outright that they indisputably show that the IPO exercise was genuine, and that substantial time, expenses and efforts were spent and incurred by eBiz in working towards a listing.  I set out below briefly the works done during this period.

391.  With a view to enhancing the management and corporate governance of eBiz, INEDs were appointed.  Prof Chen was one of them.  He has held distinguished positions in the education, public service and business sectors.  He was the former President of Lingnan University of Hong Kong and a former member of the Executive Council and the Legislative Council of Hong Kong, to name just a few.  Leong Man Wai was another INED.  He was an ex-managing director of DBS Vickers Securities Ltd in Singapore and was an experienced investment banker.  Loh Weng Whye, another INED, held directorship of many Singapore Stock Exchange mainboard listed companies and was a member of the Consultation Panel for mechanical and production engineering of two Singapore universities. 

392.  Drafts of the IPO offering document were prepared by Stamford Law and Collins Stewart and discussed at length at various drafting meetings.  Due diligence meetings were held in Singapore and Beijing.

393.  In about September 2009, eBiz had specifically set up an office in Singapore for access of information and documents by the Singapore investors.  Desmond Yue and KC Lam kept the plaintiffs informed of the location of eBiz’s Singapore office.  The plaintiffs were at liberty to check the documents of eBiz at that office if they so wished.

394.  Upon the advice of Collins Stewart, eBiz engaged various professional parties to compile independent reports to facilitate the listing.  For these reports, considerable works were put in, eg, site visits and meetings between the eBiz management and the professional parties.  These included:

(1)  CCID Consulting was engaged in around January and February 2010 to compile an industry report on the type of technology developed by eBiz to support the industry write-up in the offer document.  The relevant contents of the report were subsequently incorporated.

(2)  Beijing Chinsoft Technology Co., Ltd, a research and development company with a focus on IT in the Mainland, was engaged in about late 2009 to prepare an E-commerce Software Appraisal Report.

(3)  PricewaterHouseCoopers was engaged to conduct a third-party audit of eBiz Beijing.  A Limited Review Report of eBiz Beijing was prepared in March 2010.  And a Follow up Review Report was subsequently prepared in June 2010.  The latter was to follow up on the status of the implementation of the measures to address the internal control issues highlighted in the first report.

395.  In the meantime, between October 2008 and April 2011, impressed by its business potential of eBiz, the 1^st, 4^th, 5^th, 6^th and 7^th plaintiffs paid additional sums to invest in eBiz by way of direct subscription.

Failure of the IPO

396.  It will be recalled that Collins Stewart had repeatedly postponed the IPO listing dates.  Desmond Yue and KC Lam kept the plaintiffs informed of the revised draft indicative timetables by email and also at face-to-face meetings.

397.  In about late March 2010, Collins Stewart unexpectedly and for the first time advised that before eBiz could proceed to IPO, the shareholders had to inject further investment in the sum of S$8 million as two-year working capital purpose.  Subsequently, they advised that the requirement could be satisfied by the deposit of S$4 million cash into eBiz’s bank account and by a personal undertaking in respect of the other S$4 million.  This requirement was not mentioned previously and came as a surprise.

398.  In about April or May 2010, KC Lam met with the plaintiffs with a view to raising funds to satisfy this requirement.  However, none of the plaintiffs or the other investors were willing to inject additional fund.  KC Lam was upset about this because he felt that, as shareholders of eBiz, the investors should share part of the responsibility to inject the required capital into the company.

399.  On about 13 September 2010, in order to proceed with the IPO, KC Lam on his own deposited a sum of RMB22 million (equivalent to S$4.3 million at the time) into eBiz Nanjing’s bank account.  He also provided from his own personal resources standby assets exceeding S$4 million in order to provide an undertaking to meet the rest of the requirements of Collins Stewart.

400.  Notwithstanding that, Collins Stewart became sluggish in progressing with the IPO.  In mid-October 2010, they started to raise new requirements, including the preparation of a 10-year profit forecast and the production of a new supporting valuation report.  Despite the very short notice, eBiz duly complied with these additional requirements.  A 10-year profit forecast was submitted.  The second Grant Sherman report was compiled.

401.  Then, on about 10 November 2010, Collins Stewart further requested eBiz to provide a business model and marketing plan to show that eBiz could obtain the projected number of users in the forecast. Again, it was a very last-minute request.  KC Lam and Tommy Lai were caught by surprise when Collins Stewart only raised at the eleventh hour that sales and revenue would be a major concern in the IPO listing after all the efforts spent in the IPO exercise.  eBiz therefore had serious doubt about Collins Stewart’s professionalism and sincerity to achieve an IPO listing. 

402.  Then, by email dated 13 November 2010, Collins Stewart wrote to KC Lam, Desmond Yue and Tommy Lai saying that it would no longer be possible to issue a pre-admission notification to the Singapore Stock Exchange by 29 November 2010, as planned, as there were still a number of outstanding matters.  They proposed to reschedule the pre-admission notification to no earlier than February 2011.

403.  The mandate with Collins Stewart expired on 31 December 2010.  It became apparent that they were no longer interested in proceeding with the eBiz listing.

404.  KC Lam sought legal advice to seek recourse against Collins Stewart.  But, in the end, he decided not to incur further cost to fight a difficult legal battle in Singapore.  While Collins Stewart had never made clear the reasons for the IPO failure, KC Lam said that the downturn effect caused by the financial crisis in September 2008 on the global economy had been more pronounced than expected, and the market conditions had turned more competitive with the emergence of other e-commerce competitors, and more advanced technologies.

405.  As the IPO exercise had dragged on for a long time, the working capital of eBiz was burnt up very rapidly.  Substantial sums were incurred to defray the professional fees, including legal fees, auditors fees and consultancy fees, and also to cover the company’s ongoing operating costs, including salaries.

406.  KC Lam said that he had made his best endeavours to get eBiz listed and had in doing so injected over HK$46 million of his own money into the company since 2004.

407.  As all the working capital had dried up by early 2011, in February of that year, KC Lam had no alternative but to inform the plaintiffs that the IPO listing of eBiz had to be called off.

408.  After the calling off, Desmond Yue and KC Lam informed the plaintiffs that they would try to list the software business of eBiz on other stock exchanges.

409.  KC Lam decided to cut his loss.  In April 2011, he resigned as director and chairman of eBiz.  He engaged a law firm to claim against eBiz for the sum of HK$1 million being part of the directors’ loan to owed to him.

410.  Tommy Lai as director of eBiz issued a letter dated 9 May 2011 to the plaintiffs informing them that KC Lam would no longer finance eBiz and without such funding, the operation of eBiz Nanjing and eBiz Beijing could not continue, and further that KC Lam’s claim for HK$1 million should be repaid by eBiz selling to him the two subsidiaries.  In the letter, it was expressed that other shareholders would be allowed to bid for those two subsidiaries.  An EGM notice for that purpose was subsequently issued.

411.  On 26 May 2011, the EGM was held.  None of the plaintiffs or other investors came forward to bid for the two subsidiaries. Accordingly, they were sold to KC Lam at the price of HK$1 million.

412.  KC Lam identified another investment opportunity, namely ZYCC, which was engaged in cloud business in the Mainland with the prospect of being listed on NASDAQ.  He informed the plaintiffs about this new opportunity.  He never told them that this new venture was a restructuring of eBiz’s business.  The plaintiffs would have to put in new money if they were to invest in ZYCC.  KC Lam invited them to do so out of friendship and in view of the loss they had suffered in eBiz.

The Revenue Misrepresentation

413.  KC Lam denies making the Revenue Misrepresentation, whether orally or in writing. 

414.  As to the 4^th plaintiff’s allegation that he made a verbal comment to the effect that “eBiz would earn hundreds of millions in RMB” during the Beijing site visit, KC Lam does not recall whether he made that comment or not.  In any event, if he did make such comment, it must have been made in the context that the investment in eBiz involved high risk and potentially high return and it would require substantial funding to materialise its business potential.

415.  KC Lam and eBiz contend that the 2005 audited statements and the June 2006 management accounts were sent to the plaintiffs. These documents show that the company was not earning substantial revenues at all.  That directly contradicts the Revenue Misrepresentation.

416.  As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s position is that they were prepared by Desmond Yue alone and they shall therefore not be liable for the contents.  Without prejudice to this primary position, they make the following points.

417.  First, the June 2006 Brochure.  The section “Our Strategic Partners” was clearly drafted on the basis of a plan, rather than something already realised.  The contents therefore do not bear the meaning as alleged.  The statement, “We are in the preparation to list our Company in Nasdaq, Tokyo Stock Exchange, HKSE or SGX”, does not necessarily refer to the main boards as these exchanges also have secondary boards.

418.  Second, the eBiz Promotional Brochure.  As regards the statements regarding Digital China, KC Lam and eBiz say that the word “will” was used to describe the projected profits.  The statements would therefore not amount to an actionable representation.  On the other hand, KC Lam accepts that the statements regarding China Telecom are not accurate.  He said in cross-examination that if he had prepared the document, he would not have put down China Telecom.

419.  Third, the June 2006 Key Points 1.  The bullet point “500 Millions RMB Contract on Hand” is not false.  It means the contract is ready and available, which is true.  It does not have the meaning as alleged by the plaintiffs.

420.  Fourth, the General Information on Pre-IPO Investment.  The mere fact that NASDAQ, HKSE and SGX were mentioned does not mean that they must be references to primary boards.  Each of these exchanges have secondary boards for start-up companies.

421.  Fifth, the emails sent by Desmond Yue to the 6^th plaintiff referring to various stock exchanges.  The mere fact that the Tokyo Stock Exchange was mentioned does not mean that the intention was to list eBiz on a primary board, as the Exchange also has a secondary board.

422.  Sixth, the January 2007 Sales Getting Strong Email.  The remark “eBiz Sales are getting strong” was not false.  As shown by the audited accounts, eBiz’ s revenue for the period ended 31 December 2005 was nil and it increased to HK$513,045 in 2006.

The Company Valuation Misrepresentation

423.  The primary issue as regards the Company Valuation Misrepresentation is whether it was false.  More specifically, the question is whether eBiz’s sales projections underlying the valuations are wholly idealistic and unrealistic, and there is no or no sufficient factual basis for them.

424.  KC Lam and eBiz’s position is that the sales projections were reasonable and not unrealistic.  They were based on eBiz’s potential to generate sales and revenue, instead of actual revenue already generated.  It is eBiz’s potential to achieve the projected growth based on the prevailing industry and market conditions at the material time which is critical.  It is therefore denied that the lack of actual revenue for 2008 and 2009, cited in the pleadings, reflects the lack of factual basis behind the protections.

425.  BI Appraisals and Grant Sherman are both professional and experienced valuers which provide valuation services for listed companies in Hong Kong, Mainland China and countries in the Asia Pacific region and for a wide range of industries.  It was totally reasonable and within generally accepted valuation practice for the valuers to assess eBiz as a typical start-up IT company in its infancy stage, which lacked reliable past performance on the basis of reasonable assumptions and qualifications.

426.  The valuers did not rely entirely on the assumptions provided by eBiz.  They conducted their own investigations to test and challenge the reasonableness of eBiz’s assumptions, formed their independent opinion and made relevant adjustments to the assumptions. Keith Yan gave evidence to that effect. 

427.  In his witness statement, he set out the steps taken by Grant Sherman in compiling their valuation reports.  They included making enquiries with eBiz, determining the appropriate valuation methodology, collecting both qualitative and quantitative information from eBiz, analysing the market trend and situation, cross-checking the projections and other information provided by the company, and following up with the management on queries that they had. 

428.  In the process, Grant Sherman would look for data and industry research papers which might support or challenge eBiz’s projections or assumptions.  It is accepted that projections are inevitably matters involving judgment and opinion.  They cannot be verified as if they were facts.  However, Grant Sherman would not simply reproduce the projections without questioning.  In other words, Grant Sherman did not merely “rubber stamp” the assumptions provided by eBiz. 

429.  Keith Yan gave an example to illustrate the point.  When analysing eBiz’s financial projection, how eBiz’s “guanxi” (關係) with CCPIT could help project the business to the level expected could not be readily verified as such.  However, since CCPIT had its own database, Grant Sherman could and did try to ascertain the source and foundational units adopted by eBiz based on such data and double-check the reasonableness of eBiz’s assumptions underlying the growth and sales figures projections.  For example, Grant Sherman would consider the number of SMEs which were members of CCPIT and the proportion of SMEs which might make use of WebExpress.

430.  Keith Yan highlighted that eBiz was a start-up IT company in its infancy stage and its existing or actual revenue would not therefore be the most relevant factor in their valuation.  Instead, the crucial factor was the company’s potential.  He said:

“For as in most start-up IT companies, one would not expect to see any significant sales revenue at the initial stage of its business. Instead, the more important considerations in valuing such a start-up lies in estimating the total potential market for its products and services, how the total market is expected to grow over time and a share of that market that will be captured by it, both in the long term and in the time period leading up to steady state.”

“Crucially, the fact that eBiz had modest business operations, sales, revenue or income itself would not negate the projection of sales, revenue and growth figures. This is because the projection is not based on actual revenue or revenue already generated by the company; instead, it is the company’s potential to achieve the projected revenue figures based on the prevailing industry and market condition as at the appraisal date which is critical.” (emphasis added)

“The actual revenue is indeed not a critical factor behind the projection of growth and sales figures.”

431.  In his witness statement, Keith Yan concluded:

“Further, as the projected growth and sales figures are based on the potential built upon the factual foundation at the material time, instead of actual revenue, it is entirely meaningless to assess the reasonableness of revenue projection with hindsight and subsequent events or documents available after the appraisal date.  This is not an “apple-to-apple” comparison at all.”

432.  For these reasons, KC Lam and eBiz say that by merely pointing at the disparity between the actual revenues and the projected revenues, the plaintiffs have failed to prove that the Company Valuation Misrepresentation was false.

The High Profile Partners Misrepresentation

433.  KC Lam denies making the High Profile Partners Misrepresentation in respect of the Temasek group, the Malaysia Telecom group or the Hutchison group, whether orally or in writing.

434.  It is KC Lam’s evidence that between 2006 and 2008, in meetings with the plaintiffs, he would have mentioned eBiz’s agreements with Digital China, CCPIT, CNNIC and Lenovo.  However, he had never represented to them that the Temasek group, the Malaysia Telecom group or the Hutchison group (not including Hutchison GCL) had already become or had agreed to become partners of eBiz. 

435.  As regards the email sent by Desmond Yue to the 6^th plaintiff on 24 August 2006 saying “4th Sep in Singapore, eBiz will finalize the JV with Tamasek member firm, MSPS Pte Ltd”, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written.  Without prejudice to this position, they point out that the word used in the email was “will”.  The statement would not therefore amount to an actionable representation in any event.

The High Profile Investors Misrepresentation

436.  KC Lam denies making the High Profile Investors Misrepresentation in respect of Cheng Yu Tung, Li Ka Shing, a French telecommunications giant, the Hutchison group and a Malaysian blue chip company, whether orally or in writing.

437.  It is KC Lam’s evidence that he had never told the plaintiffs that Cheng Yu Tung, Li Ka Shing, a “France TelCo giant” or the Hutchison group had already invested in, or had agreed to invest in, or were in serious discussions about investing in eBiz.

438.  He denies that he had mentioned that Li Ka Shing “[had] expressed keen interest to invest or join the eBiz project”.

439.  As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written.  Without prejudice to this primary contention, they make the following points.

440.  First, the email sent by Desmond Yue dated 15 December 2006 regarding Cheng Yu Tung.  KC Lam and eBiz make the observation that the sentence is grammatically incorrect and, when properly construed, the obviously correct meaning is that “if Cheng Yu Tung participates in eBiz, it will be great”.  In fact, the 4^th plaintiff agreed with this interpretation in cross-examination.  As such, it is not an actionable representation.

441.  Second, the email sent by Desmond Yue on 7 July 2006 regarding the French telecommunications giant.  First, the company is not even named.  It is wholly fanciful to suggest that a reasonable reader would rely on this email to make a decision to invest.  Secondly, the email refers to “discussions”.  This cannot possibly induce a reasonable reader to invest in eBiz.

442.  Third, the emails sent by Desmond Yue dated 6 May 2009 regarding the Malaysian blue chip company.  Properly construed, the message is that there will be a blue chip company from Malaysia which will invest in eBiz.  The email therefore does not amount to an actionable representation.  In any event, if the representation is actionable, it would have been true.  There were discussions about an investment of S$2 million and that was why the EGM notice attached to the emails was issued.

The KC Lam Credentials Misrepresentation

443.  KC Lam denies making the KC Lam Credentials Misrepresentation, whether orally or in writing.

444.  His evidence is that in his meetings with the plaintiffs, he orally informed them of some of his credentials, his business networks in the Mainland and overseas, his acquaintance with some political and business leaders.

445.  He had never mentioned that he was the one who founded or set up Ninetowns.  He would mention only about the role he played in its successful listing.

446.  He would have shown a picture of him standing outside NASDAQ to some plaintiffs when he shared his experience.

447.  As regards the statement “他在北京投資設立一家開發電子報檢技術的軟體公司” appearing in the 2005 Magazine Article, KC Lam and eBiz say that there is no evidence that any of the plaintiffs had paid any particular attention to this one sentence in a four-page Chinese article.  It is also completely unrealistic for the plaintiffs to suggest that the one sentence was material to their decision to invest in eBiz, having regard to all the other information provided to them.

448.  As to the other two key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written.  Without prejudice to this primary contention, they make the following points.

449.  As regards the June 2006 Key Points 1, KC Lam accepts that the remark “Company Management with the listing experience in Nasdaq, USA” made in respect of Ninetowns is incorrect as he never participated in the management of that company.

450.  As regards the remark, “Dr Lam 1st company listed in Nasdaq”, appearing in the General Information on Pre-IPO Investment, KC Lam and eBiz say that it is at the very most an ambiguous statement.  It does not say that KC Lam founded the company.  This is to be contrasted with the first point in the document which described KC Lam as the “Founder of the Company [ie eBiz]”.

The Car Park Security Misrepresentation

451.  KC Lam denies making the Car Park Security Misrepresentation, whether orally or in writing.

452.  KC Lam never represented to the plaintiffs that the value of the car parks was sufficient to fully secure each investment.    

453.  As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written.  Without prejudice to this primary contention, they contend that the statements contained in those documents are not representations that there would be full security.  To take such statements to mean full security would be contrary to common commercial sense as it is well known that the value of property can go up and down.  Furthermore, there is no mechanism provided for in the Loan Agreements for topping up the security if the value drops below a certain threshold.  In this situation, no reasonable investor would expect that the loans would be fully secured at all times.

454.  As a fallback position, KC Lam and eBiz contend that even if the Car Park Security Misrepresentation was made, the plaintiffs have failed to demonstrate that it was false.  The Full Star valuation of the car parks was prepared in October 2006.  The investments made through Radiant Sun, Top Gain, Liberty Star and Kingston Profit took place at later times.  In this action, the plaintiffs have not adduced any evidence to show the value of the car parks as of the dates of the subsequent Loan Agreements.  Hence, there is no evidence showing that the value of the car parks was insufficient to secure the full amount of each of those subsequent loans.

455.  Solely to illustrate the point, attached to KC Lam and eBiz’s written closing submissions is a copy of the Centa-City Index (which is described as the commonly referred to monthly index of Hong Kong property prices) for October 2007 to May 2008 showing that the property prices in Hong Kong increased by more than 35% on average during that period.  I should record here that this is not evidence previously disclosed or produced by the witnesses.

The IPO Prospects Misrepresentation

456.  KC Lam and eBiz’s primary position is that the IPO Prospects Misrepresentation as pleaded fails in limine because the words “on its own” does not have a clear and well-defined meaning.  It follows that the plaintiffs are not able to establish that the representation had been made.

457.  Without prejudice to that position, KC Lam denies making the IPO Prospects Misrepresentation, whether orally or in writing.

458.  It is KC Lam’s evidence that he would have mentioned about eBiz’s plan and strategy to get an IPO listing with a view to generating funding for its future business growth.

459.  It is also his evidence that he would have made comments orally to the effect that eBiz’s business was good enough to proceed to IPO within two to three years, and a successful listing would very likely lead to investment returns of 5 to 10 times, or even 10 to 20 times.  However, such comments would be made with qualifications that the returns would depend on whether the company could be successfully listed, and that in turn would depend not on its track record of sales revenue, but on its business potential and other factors like good timing and market conditions, supportive investors and quality management.  The prognosis of favourable returns between 5 to 20 times upon listing was fair and in line with the valuation reports obtained.

460.  It was the common understanding between eBiz’s management and the plaintiffs that any concrete listing time would depend on the works in progress of the professional parties in the IPO team.  In this context, KC Lam denies having claimed to any of the plaintiffs that eBiz would be listed “very soon”.

Important facts providing the context for KC Lam and eBiz’s case

461.  In summary, KC Lam and eBiz deny that they were perpetuating the Fraudulent Scheme.  They deny that they made any of the Fraudulent Misrepresentations. They point to the following material factual matters.  A number of them have been identified under the headings “the 12 sets of “Facts” (in their opening submissions) and “the Objective Undisputed or Indisputable Facts” (in their closing submissions).

462.  First, WebExpress is a genuine product.  It has been reviewed favourably by industry experts and has received industry awards in the Mainland. During the material period, there was a huge market demand for the software as the target market (Mainland SMEs) was largely untapped.

463.  Second, knowledgeable individuals were impressed by eBiz and joined its management.  Among them, Prof Chen gave evidence for KC Lam and eBiz.  He confirmed in his testimony:

(1)  In around December 2009, he attended the Beijing office for a site visit, a board meeting and a due diligence meeting with Collins Stewart. 

(2)  At that time, he knew that eBiz was an emerging IT company at its infancy stage and it did not have any significant revenue.

(3)  He was impressed by the site visit and was convinced that eBiz had great business potential and a realistic and serious prospect of IPO listing.

464.  Third, big players well versed in IT and the Mainland market had agreed to collaborate with eBiz.  The list of partners include Digital China, Lenovo, CCPIT, CNNIC, China-ASEAN Association and Hutchison GCL.  Andrew Lee, formerly of Hutchison GCL, gave evidence for KC Lam and eBiz.  He was engaged in negotiations with eBiz which eventually led to the signing of the collaboration agreement.  He confirmed that he and his team had carefully considered the business model and plan of eBiz.  He concluded that eBiz had a great business potential.  Under the collaboration agreement, Hutchison GCL granted to eBiz a non-exclusive right to sell packaged telecom services (including, eg, China IDD, eFax) to eBiz’s customers in Hong Kong. Under this arrangement, Hutchison GCL’s telecom services would be bundled with WebExpress.  Andrew Lee considered that while the collaboration was at an initial stage, it was a rewarding one.

465.  Fourth, investors like Ho Hau Wong invested in eBiz.  Ho gave evidence for KC Lam and eBiz.  He referred to his experiences in investing in IT ventures before eBiz.  He understood that investments in start-up IT companies inherently carry high risks but potentially high returns.  At that time, he considered that eBiz had promising business potential.  Despite the loss he made on eBiz, he remains on good terms with KC Lam.

466.  Fifth, the “high risk and high return” feature of the eBiz investments was a fact well-known to eBiz’s INEDs and all professional teams in the IPO exercise.  KC Lam and eBiz in particular rely on an email from a Mr Freddy Ong, another Singapore investor, sent to Desmond Yue on 22 November 2009 enquiring about the IPO progress.  It read:

“IS EVERYTHING OK? WE HOPE THERE ARE NO SURPRISES. MY CONCERN IS THAT THERE IS NO PROFIT IN THIS COMPANY AND HOW DR LAM SPINS HIS MAGIC IS MY WORRY. E-BUSINESS IS ONE THING THAT ALIBABA/YAHOO DOES THAT MAKES MONEY FROM ADVERTS. AND EBIZNESS IS TOUGH BIZNESS. I WANT IT TO WORK SO I CAN MOVE ON.” (emphasis added)

467.  Sixth, it is precisely because of the inherent high-risk feature that the Investment Structure was put in place so that the plaintiffs had more time to assess the business potential of eBiz. 

468.  Seventh, eBiz was valued by professional valuers whose independence is unchallenged by the plaintiffs.

469.  Eighth, it is clear from the plaintiffs’ personal background that they are not the kind of unsophisticated, inexperienced investors who would be easily tricked into investing in a company such as eBiz.  The more prominent examples are:

(1)  The 1^st plaintiff is a matrimonial lawyer.

(2)  The 4^th plaintiff holds an MBA degree and held a senior management position in a multinational corporation.

(3)  The 5^th plaintiff holds an MBA degree.

(4)  The 7^th plaintiff holds a Bachelor of Science degree and owned a company in the supply of chemicals.

(5)  The 8^th plaintiff was a director of a civil engineering and construction company in Singapore.

(6)  The 9^th plaintiff was a professional services director in an IT company.

(7)  The 10^th plaintiff was the managing director of a photocopying machine supply company.

(8)  The 11^th plaintiff has a degree in economics.

470.  Ninth, KC Lam personally made substantial investments in eBiz.

471.  These objective factual matters all go to undermine the plaintiffs’ case of Fraudulent Scheme.

TOMMY LAI’S CASE

472.  I now set out Tommy Lai’s case.

473.  He is a certified public accountant in Hong Kong and has over 30 years of experience in business and financial management.  He was introduced to KC Lam by a former colleague of Price Waterhouse in 2006.

474.  In his capacity as the director and consultant of Full Star, he provided consulting services to eBiz from late 2006 to early 2007.  It was during this time that he prepared the valuation of the 15 car parks for eBiz.  Both he and Full Star were then independent from KC Lam and eBiz.

475.  He joined eBiz in April 2007.  He did so mainly for two reasons.  First, KC Lam invited him to join with great sincerity.  Tommy Lai found him to be a nice and trustworthy person with whom he could work.  He was also impressed by KC Lam’s huge business networks.  Secondly, Tommy Lai believed that eBiz had very good business potential.  He found the software a unique product.  He is not aware that there were similar products in the market at the time. 

476.  When he joined eBiz, he was the Chief Executive Officer.  His title was changed to Chief Financial Officer in August 2009 when eBiz appointed Collins Stewart as its IPO sponsor as he was in charge of the IPO project.

477.  During the material period, it was the role of KC Lam and Desmond Yue to maintain the communication with the investors, including the plaintiffs.  They were responsible for fund raising and investor relations.  Tommy Lai was not involved in these areas at all.  He only met the plaintiffs occasionally and usually during lunches with KC Lam and Desmond Yue during his visits to Singapore.  He also met those plaintiffs who went to Beijing for site visit.

478.  In respect of the first and second Grant Sherman reports, Tommy Lai was responsible for providing the projections on sales and growth and other relevant information to Grant Sherman.  He was also responsible for answering their questions and attending to their email correspondence and meetings with them.

479.  In his witness statements, he explained in detail how he came up with the projections.  They were based on three groups of projected figures, namely (1) the number of “suppliers”, ie the number of SMEs which would use WebExpress, (2) eBiz’s income streams, and (3) cost structure. For instance, for the number of suppliers, he made use of (among other things) the statistics from data.ChinaByte.com showing the huge SMEs market which eBiz could tap.  He contended that it formed a solid basis for the projected sales figures. 

480.  In respect of the IPO, Tommy Lai was responsible for all aspects of the paperwork, the preparation of business plans, accounts and budgeting, the communications with other professional parties, including Collins Stewart, Stamford Law and Deloitte.  He worked almost full time on the project from August 2009 to November 2010.  He travelled frequently to Singapore for drafting meetings, audit meetings and all other meetings relating to the IPO.  In this action, he relies on the extensive contemporaneous emails exchanged between him and the professional parties to demonstrate the works which had been put in.

481.  In his witness statement, he explained that a listing on Catalist is relatively simpler than on the main board of the Singapore Stock Exchange, mainly because Catalist has no requirements for minimum net profits and business history.  The critical part is whether the IPO candidate is able to appoint a full sponsor out of the 10 to 20 full sponsors approved by the Singapore Stock Exchange.  eBiz’s appointment of Collins Stewart was therefore a good start.

482.  It is Tommy Lai’s evidence that the IPO project is undoubtedly genuine.

483.  However, the process had taken much longer than expected and the indicative timetable was revised three times by Collins Stewart within 13 months.  Additional and substantial costs were incurred as a result.  In February 2011, as the costs were running too high and eBiz was running out of operating funds, the management had to come to a decision to cancel the proposed IPO.

484.  It is also Tommy Lai’s evidence that funds raised from the investors, including the plaintiffs, were used by eBiz to pay for operating costs, software development, marketing promotion, development of sales channels and partners, and the engagement of professionals and consultants for the IPO project.

485.  Tommy Lai denies that he made the misrepresentations to the 1^st, 5^th and 7^th defendants as alleged.  He also denies any fraud on his part or any involvement in the Fraudulent Scheme as alleged.

486.  He concludes his case by saying that this is a case of an unsuccessful IPO resulting in all parties suffering loss in terms of money, time and even hope.  While the majority of investors have accepted the loss caused by this “high risk and high return” venture, the plaintiffs have joined together and created a false claim to try to recover their investments.

487.  Having set out the parties’ respective cases, I now address the working capital point.

THE WORKING CAPITAL POINT

488.  I take the view that the plaintiffs should not be allowed to run the working capital point because the point ought to have been pleaded but was not.  If they are allowed to pursue the point, it would cause unfairness to KC Lam and eBiz.

489.  The working capital point concerns the Company Valuation Misrepresentation.  This misrepresentation is of course part of the plaintiffs’ causes of action.  As a matter of pleadings, it is incumbent on the plaintiffs to set out their case on the essential elements of the misrepresentation.  One key element is the falsity of the representation.  Put simply, the plaintiffs should set out their case explaining this – why do they say the representation was false?  Another essential element is the fraudulent intent when the defendants made the representation.  Again, in their pleadings, the plaintiffs should spell out why they say the defendants knew that the representation was false or might be false or was reckless as to whether it was false or not. These are material facts which must be pleaded in respect of the Company Valuation Misrepresentation.

490.  The principles on pleadings are trite.  It is the pleadings, not evidence, which define the issues that are to be resolved at a trial.  It is extremely important that each side knows exactly what the live issues are.  The primary responsibility for ensuring that any issues properly before the court is on the party seeking to advance the issue.  He must do so clearly and not unambiguously: see, eg, Wing Hang Bank Ltd v Crystal Jet International Ltd [2005] 2 HKLRD 795 at para 6(2).  In a case alleging fraud, the need to plead properly and with the necessary particulars is formally spelt out in the rules: see Order 18, rule 12(1).

491.  In a case where fraud is alleged, since dishonesty is usually a matter of inference from primary facts, a defendant is entitled to know not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied on at trial to justify the inference.  Hence, the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in the case of fraud.  It is not open to the court to infer dishonesty from facts which have not been pleaded: Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] AC 1 at 291-292.

492.  According to the present pleadings, the plaintiffs say the defendants represented to them that the three valuations were fair valuations.  The plaintiffs then plead the following on falsity:

(1)  The representation was false because those valuations were not fair valuations. 

(2)  They were not fair valuations because they were premised on wholly idealistic and unrealistic projected growth and sales figures provided by eBiz.

(3)  The projected figures were idealistic and unrealistic because there was no or no sufficient factual basis for these figures.

(4)  The lack of factual basis can be seen by comparing the actual revenue figures with the projected figures:

“For example and reflecting the lack of any or any sufficient factual basis behind the projected growth and sales figures, the projected sales figures on which the valuations were based included a projected gross revenue of RMB¥371,250,000 for 2008 and RMB¥464,063,000 for 2009; in reality and as a matter of fact, actual gross revenue figures for 2008 and 2009 were HK$131,880 and HK$67,745 respectively.”

493.  There is no further elaboration in the pleading on why the plaintiffs say that there was no or no sufficient factual basis for the projected figures.  Any reasonable reader would however understand that the plaintiffs are relying on what Mr Chain describes as “the extraordinary disparity” between the actual figures and the projected figures to show the lack of factual basis.  I shall call it “the disparity point”.

494.  Under the working capital point, the plaintiffs now say that there was no or no sufficient factual basis for the projected figures because eBiz did not have the available working capital to earn the projected figures.

495.  It is plain and clear to me that the working capital point is a totally different and distinct point from the disparity point.  One may readily come to this conclusion by simply taking a look at the written formulation submitted by Mr Chain: see para 162 above.  They are two different and separate reasons for saying that the projected figures lacked factual basis.  In other words, they are two different and separate reasons for saying why the representation was false.  As currently pleaded, the case which KC Lam and eBiz have to meet is the disparity point and not the working capital point.

496.  How have KC Lam and eBiz pleaded to the alleged falsity?  They say that when it comes to the valuation of an IT start-up like eBiz, one cannot look at the projected figures with hindsight, the projections were based on the potential of eBiz. 

“(6) The projected growth and sales figures provided by eBiz to the independent valuers were reasonable and not unrealistic. The projected growth and sales figures were based on eBiz’s potential to generate sales and revenue, instead of actual revenue or revenue already generated by eBiz. It is eBiz’s potential to achieve the projected growth and sales figures based on the prevailing industry and market conditions at the material time which is critical.

(7) It is specifically denied that the lack of significant actual gross revenue figures of eBiz for 2008 and 2009 reflects the lack of any or any sufficient factual basis behind the projected growth and sales figures as alleged or at all.”

497.  As regards the issue of falsity, the only live issue before the court, as disclosed by the pleadings, is whether one can simply point to the disparity between the actual figures and projected figures and conclude that there was no factual basis for the projected figures or whether it was reasonable for the valuations to take into account eBiz’s business potential.

498.  The working capital point is a totally distinct issue.  KC Lam and eBiz’s pleaded response simply does not apply and cannot serve as a proper response to that point.

499.  Going back to the purpose of pleadings, it is for the plaintiffs to explain why they say the representation was false.  If they want to run the working capital point at the trial, it is for them to plead that eBiz in fact did not have the availability of working capital to generate the projected sales figures.  It is also for the plaintiffs to then spell out why they say the defendants were dishonest when they provided the projected figures to the valuers.  These pleas are completely absent.  In the circumstance, it is impossible for KC Lam and eBiz to answer the working capital point.  The issue of whether the projected figures lacked factual basis because eBiz did not have the working capital to generate them is simply not before the court.

500.  If the plaintiffs are now allowed to run this point, it would undoubtedly be unfair to KC Lam and eBiz.  They would be deprived of the opportunity to answer the case. 

501.  As it turns out, Tommy Lai, when cross-examined by Mr Wong, gave oral evidence in respect of the first Grant Sherman report as follows:

(1)  In early June 2008, he expected the mandate with Stamford Law could be signed before August of the same year.  eBiz was also in discussion with Macquarie before June 2008.

(2)  He was confident at that time that eBiz could achieve an IPO at the end of 2008 or early 2009.  In this situation, it was possible for eBiz to obtain pre-IPO funding of RMB50 million to 100 million between June and August.

(3)  In early June 2008, there were concrete plans to raise funds between June and August.

(4)  There was therefore sufficient factual basis for him to come up with the projected sales figures based on the availability of working capital of RMB50 million to 100 million.

502.  Whether Tommy Lai’s evidence is to be believed or not is one thing.  But the fact that he was able to give an answer on the spot without any prior notice shows that had KC Lam and eBiz been given proper notice of the working capital point, they would have had a chance to prepare their case differently, for example by approaching Tommy Lai for information.

503.  The plaintiffs make a number of points to argue that there is no need to plead the working capital point.

504.  First, fundamentally, the material fact regarding the issue of falsity is the lack of any or sufficient factual basis for the projected sales figures.  And that has already been expressly pleaded. The disparity point is a matter of evidence.  So is the working capital point. It is unnecessary to plead either of them.  It is true that the plaintiffs have pleaded the disparity point.  But they have done so for illustration purposes only.  In his oral closing submissions, Mr Chain said that it was pleaded in the spirit of good practice.  Just because it is pleaded, it does not mean that all other evidence would then be elevated to the status of “material fact”.  It should be noted that in the plea, the disparity point is explicitly cited as an example.  Mr Chain reminds the court that the distinction between material fact and evidence remains relevant in cases of fraud.

505.  In his oral closing submissions, he formulated his argument to the same effect in a different way.  The plaintiffs have pleaded the broad point, which is that the projected figures had no factual basis.  What they now want to do is to simply take a narrower point within the broad point, the narrower point being that eBiz had no capability to generate the projected figures.

506.  Secondly, KC Lam himself have all along admitted unequivocally that eBiz could not generate significant revenue in its first few years of operations, that it required substantial funding to implement mass sales and marketing programmes in order to generate extensive revenue, and that he planned to obtain such funding via IPO.  That is what he said in his witness statements and his oral testimony.  In other words, it was KC Lam’s understanding from the outset that eBiz had no capability of generating extensive sales before IPO.  Therefore, it cannot be disputed that there is no factual basis for the projected sales figures.  The court should not just ignore such undisputed facts and admissions.

507.  Thirdly, it follows that there cannot be any surprise that the plaintiffs are now raising the working capital point.  Mr Chain also points to the 4^th plaintiff’s witness statement, in which he said that the projected sales figures were unrealistic as “KC Lam knew all along that eBiz had no sales, and no capability of generating sales pre-IPO”.

508.  Fourthly, Mr Chain submits that the working capital point is not something which the plaintiffs could have pleaded because it really emerged for the first time in the cross-examination of Keith Yan. What he is referring to is the latter’s oral evidence that in the course of preparing the first Grant Sherman report, Tommy Lai sent to Grant Sherman a document containing answers to a questionnaire (which was previously provided to Celestial) in which it was stated that eBiz expected that there would be capital injection of HK$50 million to 100 million in June to August 2008 for 10% to 20% equity interest in the company.  (Tommy Lai in his oral evidence denied that he sent the Celestial questionnaire to Grant Sherman.) 

509.  He refers the court to the principle set out in Waghorn v George Wimpey & Co Ltd [1969] 1 WLR 1764 at 1771B.  Where evidence at trial may establish facts which are different from those pleaded, as long as they are merely variation or modifications that are not radical departure from the pleaded case, the court may in appropriate circumstances allow the case as so varied or modified to be run.  If matters of technicality which could not be foreseen emerged during a case, it would be quite wrong to dismiss a plaintiff’s claim because his pleadings have not measured up to the technical facts which have emerged.

510.  The evidence that Grant Sherman had been told by eBiz about its expected working capital, Mr Chain submits, is a new piece of evidence.  Applying the principle in Waghorn, the plaintiffs should be entitled to rely on it to run the working capital point.

511.  I do not accept these submissions. 

512.  For the reasons already given above, I am of the view that the allegation that the projected figures lacked factual basis because eBiz had no capability or working capital to generate extensive sales is a material fact insofar as the issue of falsity is concerned.  It does not matter that the plaintiffs have pleaded the disparity point as an example.  Whether one classifies the disparity point or the working capital point as examples or not, the burden is on the plaintiffs to say why the representation was false. According to the present position of the plaintiffs, the answer is twofold. First, the disparity point.  Second, the working capital point.  They are distinct cases which the defendants have to meet.  Hence they are material facts.

513.  KC Lam’s stance, which is made known throughout these proceedings, that eBiz would require substantial funding pre-IPO is beside the point.  First, that stance is not taken in the context of the Company Valuation Misrepresentation.  Second, it is the pleadings which define the issues.  There is simply no plea on the working capital point in the context of the Company Valuation Misrepresentation.  The plaintiffs’ attempt to try to run it at the trial has come as a surprise as KC Lam and eBiz were totally unprepared for it.

514.  As to Keith Yan’s evidence, it is unnecessary for me to make a finding as to whether Grant Sherman was in fact given the Celestial questionnaire by Tommy Lai.  For the purpose of the pleading point, I accept that Keith Yan’s evidence is a new piece of evidence.  However, this is not a case where the Waghorn principle would apply.  First, the Celestial questionnaire has been disclosed before the trial.  It shows that, when preparing the projected figures in respect of the first Grant Sherman report in mid-2008, Tommy Lai was working on the expectation that there would be available to eBiz working capital of HK$50 million to HK$100 million.  On the basis of that document, the plaintiffs could have picked up the point that it did not sit comfortably with KC Lam’s position that eBiz in fact required substantial funding via the IPO.  In other words, the plaintiffs could have made the working capital point before the trial.  They did not do so.  There is no reason why they should be allowed to do it now.

CREDIBILITY

515.  This case is all about credibility. The proper approach to assess credibility is well-known.

516.  Mr Wong refers the court to what Goff LJ said in The Ocean Frost [1985] 1 Lloyds’ Rep 1 at 57:

“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”

517.  Mr Chain submits that where a version of events is well-supported by documentary evidence, the court should not overly concentrate on minutiae of oral evidence of witnesses who may be confused, forgetful, or self-serving, and instead consider the bigger picture of inherent probabilities.  In support, he cites the observations of the Court of Final Appeal in Big Island v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364 at para 34.  Tang PJ said:

“With respect, the Trial Judge failed to consider the inherent probabilities and concentrated instead on the details of the oral evidence of the witnesses who may be confused, forgetful and self-serving. Here, the defence was well supported by documentary evidence, which were either not disputed or if disputed found to be genuine by the Judge. They should have been carefully weighed and the Trial Judge ought to have had regard to them in his assessment of the credibility of the defence witnesses and the inherent probabilities of the parties’ respective cases.”

518.  I shall adopt the above approach in evaluating the conflicting evidence before the court. 

519.  The present case is a document-heavy case.  The bundles of witness statements run to about 800 pages. The bundles of documents comprise nearly 9,000 pages.  In addition, counsel have lodged extensive closing submissions.  It would be impossible to recite all the arguments (and counter-arguments) in this judgment.  Nor do I do consider that to be necessary.  What I will do is to set out a number of observations on the evidence, which I believe shed the most light on the issue of credibility.

The plaintiffs’ contradictory position on the Revenue Misrepresentation

520.  The Revenue Misrepresentation, which was introduced for the first time in 2020, undoubtedly forms an essential part of the plaintiffs’ case.  But it is directly contradictory to the case which they pleaded in the original pleadings filed in 2012.

521.  The original statement of claim pleaded, at para 9:

“Initially the 1^st to 11^th Plaintiffs and other investors refused to invest in eBizAnywhere since they were not provided with sales or profit figures of the company and thus had no confidence in the successful listing of eBizAnywhere. In light of the investors’ reluctance and lack of confidence in making investment, the 1^st to 4^th Defendants redesigned the whole plan by turning the investment scheme into a loan scheme which allegedly offered assets backing so as to induce the 1^st to 11^th Plaintiffs and other investors to put in their money in eBizAnywhere.” (emphasis added)

522.  The original reply pleaded, at para 29(1):

“They had repeatedly asked the Defendants to provide copies of the documents and financial statements to them, including but not limited to the Loan Agreement relating to Kingston Profit Limited. However, the 1^st Defendant always deferred their requests or told them to ask the 3^rd Defendant to receive the documents (but the 3^rd Defendant also refused/failed to provide the same), meanwhile painted a false rosy picture of eBiz with a view to divert their attention.” (emphasis added)

523.  The original reply further pleaded, at para 30(1):

“As explained in paragraph 9 of the Statement of Claim, the Plaintiffs initially were reluctant to invest into eBiz since they were not provided with sales or profit figures of the company and thus had no confidence in the successful listing of eBiz.  The Defendants thus redesigned the whole plan by turning the investment scheme into a loan scheme with alleged asset backing to induce the Plaintiffs to “invest”.” (emphasis added)

524.  Lastly, the original reply pleaded, at para 36(1):

“More than once the Defendants mentioned that the celebrities/tycoons intended to invest in eBiz. In fact, it was one of the main tactics deployed by the Defendants to attract new investment and to distract the attention of the Plaintiffs and other investors from important matters such as the sales revenue and profit of eBiz.” (emphasis added)

525.  In the original pleadings, the case which the plaintiffs were putting forward was thus:

(1)  The defendants did not and did not want to provide any sales or profit figures.

(2)  The plaintiffs were reluctant to invest because of that.

(3)  The defendants therefore had to re-design the whole thing and change it into a loan scheme.

(4)  The defendants were distracting the plaintiffs’ attention from the sales and profits of eBiz.

526.  This case is diametrically opposite to the present case run by the plaintiffs, which is that eBiz was sold to them as a company that had generated or would, as a matter of guaranteed certainty, shortly generate extensive revenue.  The contradiction goes to the core of the Revenue Misrepresentation.  The contradiction is more pronounced when one takes into account what has been stressed by the plaintiffs in this action, namely that such representation was repeatedly made, bolstered and refined through the Indoctrination Method throughout the material period. 

527.  Predictably, the plaintiffs were cross-examined on this.  They were asked to explain why their case contains such a contradiction.  None of the plaintiffs were able to give a credible or convincing answer.  In fact, many of the answers were incoherent and difficult to understand.  I would summarise the answers broadly as follows. 

528.  The more common response is that the original plea does not apply to the individual plaintiff but applies to some other investors.  As the plaintiffs managed to gather more information and find out more from other investors as this action progressed, they made “amendments”, “adjustments” or “changes” to their case, which resulted in the different versions.  This would appear to be the answer given by the 1^st, 5^th, 7^th, 9^th and 11^th plaintiffs.

(1)  The 1^st plaintiff initially accepted that there was an inconsistency.  She later retracted that.  She said this:

“It’s not really inconsistent. As I said, as times go by, we gather more informations, more – from the rest of the investors and co-plaintiffs, then we came to know a lot of facts. … Okay, over here, it says that 1^st to 11^th plaintiffs and other investors, so we do include other investors, because when this whole thing revealed, then we come to know there is many other people, and then we gather our information and that is when we make some amendment, there is where another statement comes in.”

(2)  The 5^th plaintiff was asked why he did not put forward his own version correctly in the original pleadings.  He said:

“Because, at the beginning, well, I didn’t know all the others. And the information that I had, it’s very limited. Besides, I was not able to remember many things. So the statements that I made is, well, what I could remember and what I had. Basically, that’s it. But later on, more information emerged, for example, including the statements made by the others, and the information provided by the others, and slowly some adjustments had to be made to some views.”

(3)  The 7^th plaintiff also said that the original plea did not apply to him.  It was some other plaintiffs who encountered this:

“Well, according to what I know, when these things were gathered, well, for some of the plaintiffs, they did encounter these matters.”

(4)  The 9^th plaintiff said:

“If you ask me about the different version, it’s because there are so many documents that we have to flip, and because the processing is so long, many of us have to go through the documents with our legal representatives, so these are part – I mean, there are changes along the way, as we discover more documents.”

(5)  The 11^th plaintiff said:

“… But I look at this. If this has been written like that, I think that there must be some, among 11 of us, there could be people who made this request.”

529.  These answers are not easy to understand.  Doing the best I can, these plaintiffs seem to be saying that there were indeed some other investors who encountered what was described in the original pleadings and that was why the pleadings were drafted that way.  But as the action moved on, more information emerged and the plaintiffs made changes to the documents accordingly.

530.  However, this answer does not address the contradiction point at all.  When the action was commenced, there were only the 1^st to 11^th plaintiffs.  There were no “other investors” who were joined.  The original pleadings were drafted by solicitors and were supported by statements of truth signed by each of the plaintiffs.  The original plea is not difficult to understand.  Any reasonable reader would understand that to mean that each of the plaintiffs encountered what was described there.  If what was stated there did not apply to a particular plaintiff, there was no good reason why he or she could not have said so in the original pleadings.  The above answer completely fails to explain why the plaintiffs put forward a totally opposite and wrong case in 2012. 

531.  Furthermore, to say that the change from the original pleadings to the present pleadings are “adjustments” or “amendments” is a gross understatement.  The present case is a wholesale replacement and a turnaround of the original case.

532.  The 2^nd plaintiff gave a similar response.  However, his answer was more concrete as he referred to a specific timeframe, and later on in his answers, he readily admitted that there was a mistake in the original pleadings insofar as it concerned him.  In that sense, his answer is slightly better than the one above.  Here is the relevant exchange in cross-examination:

“Q. … you realised that what was stated in 2012 and 2013 as your case is contradictory to what you are seeing; right? Do you agree?

A. No, because – can I explain?

Q. Yes.

A. I think, during the very beginning for Ocean Gate, there were some other investors were involved, and according to Desmond, what I heard from him is that initially there were other people that wasn’t interested or something, and he came back with this loan scheme or something, yes.

Q. You are talking about other investors, investors other than the 11 of you?

A. Yes.

Q. But, Mr Koh, what I’ve just summarised for you is the case put forward by the 11 of you. It’s all 11 of you, not other investors … That is not correct; is that right?

…

Well, I think at that point of time, there were other plaintiffs also, but they did not come – they did not join us in the proceeding. So we may have some miscommunication there with our lawyers. Generally said 1 to 11, yes.

…

Q. So if, instead of saying P1 to P11 repeatedly asked for financial statements, I say P2 repeatedly asked for financial statements and P2 was repeatedly refused, is that correct? Is that a correct statement of fact?

A. Yes, I think it could be a mistake. That could be –

Q. It could be a mistake?

A. Yes, sir.

Q. So why was there a mistake?

A. Well, at the beginning of time, things was not really that clear and there were other people involved and then the other investors involved and then eventually they didn’t, so we take it that other plaintiffs – so generally we put it as a whole. Yes. ”

533.  While the 2^nd plaintiff seemed to be more forthcoming when he dealt with the contradiction point, his answer is still not satisfactory for the same reasons given above.

534.  The 3^rd plaintiff surprisingly claimed that the version in the original pleadings was true.  That must mean that his present case on the Revenue Misrepresentation cannot stand.  This also casts serious doubt on the reliability and credibility of his evidence as a whole.

535.  The 8^th plaintiff also said that the original plea did not apply to him and he would like to correct it.  He was pressed with an explanation for such a fundamental contradiction.  He said:

“Okay. Well, concerning this fundamental contradiction, given that there were a few batches and different times were involved, and for me, well, nothing was mentioned about asking for financial statements, and once I went there it was said that there was this loan which would have the backing of car parks.

…

That is, well, this loan would be backed up by car parks. And as to what happened earlier on, I really don’t know. If there’s anything involving the others, well, I didn’t know.” (emphasis added)

536.  This was then followed by the admission that the original plea was not correct because he did not understand it:

“Q. Yes, but in 2012 and 2013, you knew that version is not true, but you put forward in any event; is that right?

A. Not correct, because I didn’t notice that.

Q. You didn’t notice the case that you are putting forward before the court?

A. Correct. Because it’s written in English and I didn’t try and get an understanding of it.”

537.  The 8^th plaintiff’s answer is absurd and alarming.  He signed the statements of truth which accompanied the original pleadings.  Yet he now says that he did not try to get an understanding of the contents of the documents the truth of which he has vouched for.

538.  The 10^th plaintiff similarly also said that the original pleas did not apply to him.  When asked whether the original pleas were true or not, he said that he could not answer the question.

539.  This answer is equally absurd and alarming.  The 10^th plaintiff is unable to either stand by or disown what he himself previously confirmed to be true.  That must cast doubt not only on his case on the Revenue Misrepresentation, but also the overall credibility of his evidence.

540.  In respect of the contradiction, Mr Chain submits that undue emphasis should not be placed over these “imperfect superseded pleadings”, as the legal case had to be refined over time to more accurately reflect the plaintiffs’ instructions and truthful recollection of events.  He further submits that as laymen who are not versed with the technicalities of legal procedure and jargon, the plaintiffs were genuinely confused about the superseded pleadings which were filed more than 10 years ago.  It is evident, he submits, that the plaintiffs had tried their best to understand the questions put to them and they gave honest responses and gave frank admissions when there is an oversight or mistake.  The situation is compounded by the inherent difficulties of putting together one collective pleadings on behalf of a large number of plaintiffs, which is naturally more prone to inadvertent errors.  Considering the complex nature of the case involving 11 plaintiffs, the slight imprecision in superseded pleadings should not be over-magnified and clearly does not impinge on the overall credibility of the plaintiffs.

541.  I am unable to accept these submissions.  It should be remembered that when the original pleadings were filed, the 11 plaintiffs were represented by their solicitors.  There is nothing technical about the original allegations.  If a particular plaintiff’s situation is different from the others, I can see no good reason why his case cannot be carved out from the general averments applicable to all other plaintiffs and his individual factual narrative be included.  Furthermore, as remarked above, the present case can hardly be described as a refinement of the previous case. It is a diametrically opposite case. 

542.  Separately, in the original pleadings, it was stressed that the plaintiffs “repeatedly asked” the defendants for sales and profit figures (which they considered to be “important matters” for their investments).  Yet, in cross-examination, with the exception of the 3^rd and 6^th plaintiffs, all the plaintiffs claimed that they did not ask for any accounts.  Such evidence is again directly contradictory to the pleas made in 2012.

543.  In the absence of any convincing answers explaining the contradiction in relation to the Revenue Misrepresentation, the plaintiffs’ contradictory position not only severely damages their case on this particular representation but also casts serious doubt on the overall credibility and reliability of the their evidence.

The plaintiffs’ incoherent position on the False IPO Notification

544.  As confirmed at the trial, the False IPO Notification is not itself a cause of action.  Nonetheless, it is a very important part of the plaintiffs’ case.  By way of the False IPO Notification, the protection afforded by the Investment Structure was unravelled.  The plaintiffs therefore say that the False IPO Notification is strong evidence demonstrating the fraudulent intent of the defendants.

545.  However, the plaintiffs’ position on this very important part of their case is incoherent.

546.  It is necessary to reproduce here the relevant pleas and the corresponding written evidence.  The letter numbering (as underlined below) is inserted by me for easy reference:

“16. From July to September 2009, the 1^st to 3^rd Defendants procured the release of the Car Park Security by falsely misrepresenting (a) that the IPO of the Company was imminent, (b) that the Company’s IPO sponsor [Collins Stewart] had issued a notification of IPO, and (c) that the Company was to be listed on the Catalist Board of the Singaporean Stock Exchange (“the False IPO Notification”). …

17. (d) In fact, Collins Stewart had never issued any IPO Notification.  The Plaintiffs later learned from Collins Stewart that the Company was not close to an IPO at all as there were many outstanding items raised by Collins Stewart that the Company had not fulfilled  …”

547.  The incoherence lies with para (b).

548.  Mr Wong submits, and I agree, that the complaint as disclosed in the above pleas is that at that time, the defendants told the plaintiffs that Collins Stewart had issued some kind of formal notification in relation to the IPO.  Para (d) supports that reading.  But that was a lie because Collins Stewart had never issued any such notification.

549.  In the master statement of the 4^th plaintiff, he said this about the False IPO Notification:

“Late August 2009 is a particularly significant turning point. As part and parcel of the IPO Prospects Misrepresentation, the Defendants misrepresented that the IPO for eBiz is a few months away, (e) that the IPO sponsor Collins Stewart had issued an IPO notification, and therefore under the terms of the Loan Agreements the Plaintiffs and other “investors”/victims had to choose whether to receive “conversion shares” of eBiz or to acquire the Car Park Properties …”

550.  Later on, in the same statement, he added:

“There is absolutely no evidence whatsoever that (f) Collins Stewart as the IPO Sponsor ever issued any notification of eBiz’s IPO. The Defendants have not produced a single document to such effect.”

551.  Such evidence is consistent with and in support of the above pleas.  Once again, para (f) clearly refers to some kind of formal notification issued by Collins Stewart in relation to the IPO. 

552.  However, all the plaintiffs made a correction in their supplemental witness statements to the effect that in para (e), they were in fact not referring to any formal notification.  Their written evidence is identical:

“(a) The Plaintiffs’ use of the term “False IPO Notification” is not a technical term, it is not a suggestion that Collins Stewart had issued some kind of formal, technical notification.  The Plaintiffs are not sophisticated investors and do not have expertise to use such technical terms.  Indeed, the Plaintiffs had no direct dealings with Collins Stewart.

(b) Rather, the term “False IPO Notification” is simply used to describe the Defendants’ conduct … of fraudulently inducing the Plaintiffs to release the Car Park Properties, by falsely representing to the Plaintiffs that the IPO of eBiz was scheduled to occur …” (original underline)

553.  I should note immediately that in the supplemental witness statements, the plaintiffs did not go on to clarify what exactly was meant by the words “an IPO notification” which appeared in para (e). For instance, a notification to whom? 

554.  Some of the plaintiffs were cross-examined on this issue.  The 2^nd plaintiff said that there was some miscommunication in relation to para (e).  He accepted that the defendants in fact did not make the representation that Collins Stewart had issued the IPO notification.  The 3^rd and 8^th plaintiffs’ answers on this issue are difficult to follow.  They did not seem to be able to understand the issues surrounding this topic. 

555.  But what really stands out from the oral testimony is the 4^th plaintiff’s express and repeated confirmation that in para (e) of his master witness statement, he was in fact referring to a pre-IPO notification issued by the sponsor to the Singapore Stock Exchange. That confirmation was unequivocal.  One immediately sees that this goes directly contrary to his correction in the supplemental witness statement.

556.  Notwithstanding the 4^th plaintiff’s oral testimony, Mr Chain, in closing, reiterates that in para (b), the plaintiffs were not referring to a technical notification to the stock exchange.  He acknowledges that some confusion may arise out of the use of the word “notification”.  However, he submits:

“However, read as a whole, the Plaintiffs’ case is that it was falsely represented to them that Collins Stewart had notified eBiz that it was definitively scheduled to be listed on Catalist already as of August 2009.”

557.  It is plain from the documents highlighted above that the plaintiffs’ position on the False IPO Notification has been shifting quite dramatically in the course of these proceedings and is thus incoherent. The 4^th plaintiff’s oral evidence contradicts his latest written evidence, which itself overrides the plain meaning of the pleadings.  The explanation that the plaintiffs are not familiar with technical terms is not convincing.  Even though the plaintiffs had made use of various occasions to try to clarify the plea in para (b), yet at the conclusion of the trial it remains unclear as to what the word “notification” as used in that paragraph means.

558.  In my view, the incoherent stance of the plaintiffs on the False IPO Notification, which forms a very important part of their case, considerably undermines not only the credibility of this part of their case but also their case as a whole in this action.

The plaintiffs’ case against Tommy Lai is not made out on their own evidence

559.  Tommy Lai’s case is that he was not responsible for investor relations and he only met the plaintiffs occasionally during the material period.  That is specifically denied by the plaintiffs.  They say that Tommy Lai was one of the three fraudsters perpetuating the Fraudulent Scheme.

560.  In the amended reply, they say:

“It is denied that“all investor relationships” between eBiz and the Plaintiffs was handled by the 1^st and 3^rd Defendants. It is further denied that the 2^nd Defendant only met the Plaintiffs occasionally at all material times. The Plaintiffs aver that the 1^st, 2^nd and 3^rd Defendants worked as a team and frequently met with the Plaintiffs.” (emphasis added)

561.  In the re-amended statement of claim, the following conduct of “the Defendants” or “the 1^st to 3^rd Defendants” is pleaded:

“Between November 2006 and April 2008, the Defendants made the Fraudulent Misrepresentations as set out above to the Plaintiffs, at various face-to-face meetings with the Plaintiffs (whether individually or in a group), as well as through telephone calls and/or emails.”

“In early August 2011, … [t]he 1^st to 3^rd Defendants then started talking about a necessary restructuring exercise with ZYCC to the Plaintiffs, including the more passive ones to which the 1^st to 3^rd Defendants had not previously mentioned ZYCC.”

562.  In the master statement of the 4^th plaintiff, he spoke about the various meetings attended by Tommy Lai with the plaintiffs and Tommy Lai’s involvement in the Fraudulent Scheme.

563.  I quote below the passages in which the 4^th plaintiff either referred to Tommy Lai by name or included him by using the phrase “the Defendants”:

“Further, Desmond Yue arranged multiple group meetings, attended by groups of the Plaintiffs and other “investors”/victims, where KC Lam and Tommy Lai had the opportunity to introduce themselves to and interact with the Plaintiffs.”

“Other alleged high profile investors named by the Defendants through orally made misrepresentations, which pre-dated and induced the 5 rounds of “investment” of the Plaintiff as set out at paragraph 9 of the Re-Amended SoC, include the Temasek Group, the Hutchison Group, Li Ka Shing, Richard Li Tzar Ki, and the Ho family (said to be the founding member family of Hang Seng Bank).” (original underline)

“Other alleged high profile partners named by the Defendants through orally made misrepresentations, which pre-dated and induced the 5 rounds of “investment” of the Plaintiff as set out at paragraph 9 of the Re-Amended SoC, include the Temasek Group, the Hutchison Group, the China Telecom Group, the Malaysia Telecom Group, PCCW, Skype, Li Ka Shing, and a general reference to “Hong Kong tycoons”.” (original underline)

564.  A plain reading of the above passages would suggest that Tommy Lai had active and frequent interactions with the plaintiffs throughout the material period.  However, as it emerged in cross-examination, most of the plaintiffs now say that they hardly met or spoke with Tommy Lai and only did so perhaps just once or twice during the five-year period.

565.  In particular, when cross-examined by Tommy Lai, the 4^th plaintiff confirmed that he only met Tommy Lai in person once in Beijing and received two emails from him in 2011, one in relation to the direct subscription in April 2011 and the other in relation to the HK$1 million debt owed by eBiz to KC Lam.  That was all the interactions he had with Tommy Lai.  He then confirmed that some of the above references to “the Defendants” and “the 1^st to 3^rd Defendants” do not include Tommy Lai.  For other references, he could not recall whether Tommy Lai should be included.

566.  This was of course a very surprising answer and gave the court great concerns.  First, the evidence goes directly contrary to the picture portrayed in the plaintiffs’ pleadings and written evidence that Tommy Lai made frequent appearances and had constant interactions with the plaintiffs.  Secondly, it seems that when the words “the Defendants” are used in the plaintiffs’ court documents, one cannot take it literally to mean all the defendants, including Tommy Lai.

567.  At the trial, I had the following exchange about the latter point with the 4^th plaintiff.  In that exchange, he made other equally (if not more) surprising revelations.  He said that the plaintiffs have somehow “generalised” the pleadings and the witness statements and have used the term “the Defendants” in such a way that sometimes it was intended to refer to all the four defendants and some other times it was intended to refer to some particular defendant(s).  It depends on the context. That is so, notwithstanding that the obvious literal meaning of “the Defendants” must include all the four defendants.  At the end of the exchange, I pointed out to the 4^th plaintiff that one would simply not know what to make of the allegations made against Tommy Lai, which are serious fraud allegations made against a person holding a professional qualification.  He said that he did not have an answer to that.

“Court: … Mr Lai’s question to you is despite the general reference to “the Defendants”, he is now asking you to confirm whether throughout this statement where we see reference to “the Defendants”, does it mean all the defendants or only some of the defendants. I understand the answer that you gave just now which was it in fact depends on the context.

A. Yes.

Court: Are you saying that throughout this witness statement and also your supplemental witness statement?

A. Yes. In this case.

Court: So when we see reference to “the Defendants” we can’t take it to mean all four defendants?

A. Yes, that’s correct.

Court: That applies also to your pleadings? That means the statement of claim, the latest version, or in fact any version, or the reply?

A. To all versions, if I understand it correctly. Yes, I know that we have gone through a few of those clauses which were pointed out by Mr Lai. I think, my Lady, this is the case.

Court: You think?

A. I think this is the case, that we have somehow in some cases generalised it. It does not mean to say that when it is mentioned “the Defendants” that it is always the case we are referring to all defendants from D1 to D4.

Court: Okay. In this case you are making a fraud allegation against D2. Are you telling me that in the witness statements in support of your claim you are using “the Defendants” in a generalised way, so some of these allegations in fact do not apply to D2, Mr Lai?

A: Yes.

Court: How can we then tell which part applies to D2 and which does not apply to D2? Can you answer that first?

A: I mean, if needed I’m prepared to go through it, I mean, in this trial session. I don’t know if that is one way, or is there a better way to give better clarity or the truth to that? I need a bit of, maybe advice, on this matter.

Court: I will say it for the third time. I hope I can drive home the message.

The allegations made against Mr Lai a very serious ones. Mr Lai is a CPA. An allegation of fraud against a professional person is a very serious matter and, therefore, in claims of this sort we would expect all these allegations going to support the fraud claim to be particularised, clear and precise.

Just now you told me that you might want to give some more clarity to it. We are at the very final stage of this action, we are at the trial.

Previously versions of pleadings have been lodged with the court. Witness statements, very lengthy ones, have been filed, followed by supplemental witness statements. So, I want you to reflect on this very carefully.

My question to you now is how do we treat the allegations, very extensive and serious allegations against Mr Lai, which are made in your witness statement, supplemental witness statement, statement of claim and reply?

A. My Ladyship, I don’t have, in fact, an answer. I well noted your point and as you have highlighted, it’s serious and, therefore, I would not want to at this point attempt, you know, to actually give an answer to your question which later might, you know, again lead us down a wrong path. So, sorry, I couldn’t really give an answer to this, yes. Pardon me. I’m really sorry, your Ladyship, but I noted your point here, I will reflect on this a bit.” (emphasis added)

568.  It seems to be the case that even at the trial, the 4^th plaintiff was still trying to work on and come up with a good case against Tommy Lai.  His remark, “or is there a better way to give better clarity or the truth to that?”, is alarming.  Of course, the only way to tell the truth is to tell the truth as it is.  He however seemed to be suggesting that there are some other methods by which he could put together or “construct” (a term used by Mr Wong in his closing submissions, to which I will return in the next subsection) a case with some advice.

569.  It is necessary to set out some other plaintiffs’ oral evidence which similarly goes to contradict their pleaded case and their written evidence.  This further demonstrates that the plaintiffs’ case against Tommy Lai is not even made out on their own evidence.

(1)  The 3^rd plaintiff testified that she only met Tommy Lai once.  She also confirmed that she did not have any telephone calls or correspondence with him.  Notwithstanding that, she accused him of being part of the Fraudulent Scheme because he held the title “CFO” in eBiz. She said:

“Well, from the beginning to the end, from the Beijing trip up to now, he did participate in that. Well, because he is someone employed by KC Lam to act as the CFO or something like that. That’s what I heard when I was in Beijing, that is, there is such a director or CFO.” (emphasis added)

“Well, he is someone employed by KC Lam, and you are the CFO. It’s for sure that this was done by you.”

(2)  Similarly, the 5^th plaintiff said that he could not remember having spoken to Tommy Lai.  All that he could remember was that Tommy Lai had given him the business card.  Nevertheless he still accused Tommy Lai of fraud because he was the CFO of eBiz. 

“A. Well I don’t remember having talked to you. All that I can remember is that you have given me a business card.

Q. If this is the case, how can I misrepresent you in certain information?

A. Well, he’s the CFO; right?

…

A. Well, what I mean to say is that he is a part of the group.

…

A. Because they form the top management, so he should know about it, and concerning these things, they had talked about it.  So probably they knew about all these themselves. ”

(3)  The 5^th plaintiff is one of the three plaintiffs who claim that Tommy Lai had personally made Fraudulent Misrepresentations to them.  Given the above answers, the 5^th plaintiff simply has no case against Tommy Lai.

(4)  The 6^th plaintiff confirmed that he had never spoken to Tommy Lai.  He accused Tommy Lai of fraud based on the car park valuation compiled by Full Start and the five-year projections also compiled by Full Star.  However, as confirmed by counsel, the plaintiffs are no longer pursuing the first point in the Car Park Security Misrepresentation. They are not making any case of fraud out of the second point.

(5)  The 10^th plaintiff only made one investment, namely in Ocean Gate.  And that was before he met Tommy Lai for the first time in June 2007.  He confirmed that Tommy Lai did not have any involvement or influence in his decision to invest in Ocean Gate.  However, he still accused Tommy Lai of fraud because he was the CFO and was in charge of the operation of eBiz and the IPO administration.

570.  The oral evidence of the plaintiffs as regards Tommy Lai (no or minimal interaction) starkly contradicts their pleaded case against him (“frequently met”) and their written evidence (“multiple group meetings”). Separately, some of the plaintiffs are accusing Tommy Lai of fraud merely because he was the CFO of eBiz and therefore must have participated in the fraud.  There is not how the case is presented either in their pleadings or in their written statements.  In any event, it is plainly not enough for the plaintiffs to establish fraud merely by relying on Tommy Lai’s title.

571.  It is worth repeating what I said in the trial. In this action, the plaintiffs are making very serious and extensive allegations against Tommy Lai.  Yet, through their oral testimony, it has become abundantly clear that (1) their case against him is not pleaded properly because of the indiscriminate use of the words “the Defendants” and “the 1^st to 3^rd Defendants”, and (2) their evidence falls far short of establishing fraud against him.  In fact, one may even say that their case is disproved by their own oral evidence.

572.  Mr Wong submits that how the plaintiffs have conducted their case against Tommy Lai is highly relevant in the assessment of the overall veracity of their case against all the defendants.  I agree.  The unsubstantiated case which the plaintiffs put forward against Tommy Lai puts the reliability and credibility of their evidence in a bad light.

The plaintiffs seem to have “constructed” their case based on documents and information obtained from others, with no personal recollection of their own

573.  So far, we have seen a number of contradictions and inconsistencies within the plaintiffs’ case and their evidence.  There are in fact other inconsistencies which are apparent on a plain reading of their documents.  All these have given fertile ground for cross-examination by Mr Wong (and Tommy Lai).  There was a general theme which emerged in the course of their cross-examination and I have already discussed this in the context of the Revenue Misrepresentation.  According to the plaintiffs, at the initial stage after the Fraudulent Scheme was exposed, they did not really know what had gone wrong and had only limited information.  As time went by, some of the investors grouped together and shared information and documents in their possession among themselves.  This took place even after the present action was commenced.  As more and more information was shared and documents disclosed, the plaintiffs made changes or adjustments to their case.  And that explains why some of the later versions of events are different from the earlier ones.

574.  Separately, there was a line of cross-examination in which Mr Wong asked the plaintiffs why they seemed to be able to say more and recall better about the same events in the supplemental witness statements than in the first witness statements.  This phenomenon has been described by Mr Wong as “concerted escalation” of the plaintiffs’ evidence.  There are two aspects to it.  First, the evidence is “escalated” in that the later evidence is either fuller in detail or there are more details. Second, every plaintiff was able to “escalate” in the same manner.  The general theme, as revealed by many of the plaintiffs’ answers, was similar to that when they were asked about the inconsistencies in their documents.  

575.  It is inherently plausible that the plaintiffs would initially have difficulties in finding out why the IPO was called off. This is so given that according to their case, they are the victims of an elaborate fraud perpetuated over a time span of five years.  Before their investments in eBiz, they largely did not know each other.  And there is no suggestion that during the material period, they were closely interacting with each other in respect of their investments.  It is inherently plausible that each of them would have limited information at the initial stage immediately after their discovery of the fraud.  They might not be able to remember the many things that were said or presented to them over the past five years.  To compound the problem, I also accept that for a period of time, they might only have “messy information” (using the 2^nd plaintiff’s words).  This is because there were so many investors involved and they made their investments at different times (“there were a number of batches of people and different times were involved” in the 8^th plaintiff’s words).

576.  In cases such as the present one, when contemporaneous documents later become available, they may help jog the memory of a party (or a witness) such that he may be able to remember more details about what had happened and give further evidence accordingly.  That happens. Whether the court believes the further evidence would depend on all the circumstances of the case, applying the well-known yardstick by which credibility is usually measured.

577.  If new documents help bring back a memory which previously eluded a party, it is quite legitimate for him to put in facts as he now remembers them in the court documents and assert those facts as true, as they would be based on his own personal recollection and knowledge. 

578.  What is not legitimate, and what seems to be happening in this case on the plaintiffs’ part, is when (1) a party says in a court document that something happened to him when in fact it only happened to others, or (2) he states that a certain event happened as a matter of fact without any qualification and vouches for its truthfulness by signing a statement of truth when he has no personal knowledge about the event.  In the present action, the filing of the original pleadings asserting that all the plaintiffs had asked for financial information from the defendants when the overwhelming majority of them had not is an instance of the first type.  The allegation made against Tommy Lai that he attended “multiple group meetings” when the plaintiffs could not confirm that to be true at the trial is an instance of the second type.

579.  Mr Wong points to many other similar instances in his closing submissions and says that in these cases, the plaintiffs did not actually remember the facts about which they were giving evidence, but retrospectively constructed a case based on information and documents in the possession of other plaintiffs.  He submits that the plaintiffs are engaging in a collective exercise of reviewing the documents and adjusting their evidence, in order to present what they thought would be the most convincing case to the court, as opposed to the true facts within their own knowledge.  I shall call what Mr Wong has described as “the collective construction exercise”.  He seeks to make good the point by referring to what appears to be “admissions” made by some of the plaintiffs at trial.

580.  Mr Chain disagrees that the plaintiffs made these “admissions”.  He cautions that the oral evidence must be considered in proper context and one must scrutinise the relevant Q&As with care to ascertain what the party in question really meant.  The style in which the party generally answered questions should also be taken into account.  Both Mr Chain and Mr Wong have set out the relevant parts of the transcripts in their written submissions, accompanied by an almost sentence-by-sentence analysis of what the Q&As show and whether they should be construed as “admissions” or not.  I will not reproduce those transcripts in full in this judgment save to highlight the evidence of the 4^th and 8^th plaintiffs which, in my view, either overwhelmingly shows that the plaintiffs had engaged in the collective construction exercise or contains an admission that such an exercise was undertaken.

581.  I first discuss the 8^th plaintiff’s evidence when he was cross-examined in relation to the High Profile Investors Misrepresentation, the alleged high profile investor in question being Li Ka Shing.  He was challenged on why his evidence could be “escalated” as this action progressed.  I agree with Mr Wong that at the end of the exchange with counsel, the 8^th plaintiff admitted that he made his written evidence without any independent recollection of the matter.

582.  It is necessary first to set out the written evidence.  The first extract below is from the witness statement and the second extract from the supplemental witness statement.

“Shortly after introducing himself, Desmond Yue launched into his “sales pitch” by making the following statements:

…

(d) Big name investors such as Li Ka Shing of the Hutchison Group and other Hong Kong tycoons would be investing in eBiz.”

“In a meeting in early March 2007 with Desmond Yue (amongst others) at Hans Café:-

…

(iii)       Desmond Yue also mentioned that big name investors such as Li Ka Shing of the Hutchison Group and other tycoons would be investing in eBiz.  It was a clear representation that although Li Ka Shing and the other tycoons had not yet invested, their investment was simply a matter of time and guaranteed (and not merely that they may potentially invest in the future).”

583.  In cross-examination:

“Q. Can you help us as to why, in 2022, you could be so certain to say that Desmond Yue represented to you Li Ka Shing’s investment was guaranteed, when you were not able to say that in 2019?

A. Well, I had made reference to the statements of other plaintiffs.

Q. So you do not have independent collection. You just draw reference to what other people said or told you to say; right?

A. Correct. Well, I’m not very clear about what happened at the later stage.”

584.  Mr Chain’s take on this exchange is that the 8^th plaintiff might have had to rely on information provided by other plaintiffs so as to refresh his memory, and when he agreed with counsel that he had no independent recollection, he meant that he could only recall the events after his memory was refreshed.  I do not agree with that interpretation.  The 8^th plaintiff did not say anything about his memory being refreshed.  Further, as cautioned by Mr Chain, the answers need to be considered in context.  The context was made clear in Mr Wong’s question.  The context was the “escalation” of the evidence.  In this context, the 8^th plaintiff’s answer was that he was able to “escalate” because he referred to others’ statements, with which he had no independent collection.

585.  There is similar “escalation” in the context of the High Profile Partners Misrepresentation and High Profile Investors Misrepresentation in the other plaintiffs’ evidence.  In gist, the representations about the participation of the alleged investors and partners have evolved from being a potential involvement (eg “would soon be investing” or “was interested in investing”) to an “existing” involvement or the investment being “simply a matter of time and guaranteed”.

586.  This goes to support Mr Wong’s submission that there was a collective exercise to “escalate” the evidence.

587.  Next, I turn to the 4^th plaintiff’s evidence.  It can perhaps be similarly characterised as an “escalation” of evidence, but this time it was done in the context of the Revenue Misrepresentation.

588.  In his supplemental witness statement, the 4^th plaintiff spoke about the Beijing meeting in about June 2007:

“At paragraph 115 of my 1^st Statement, I set out the circumstances of how I was induced to “invest” HK$550,000 into eBiz through Kingston Profit in April 2008.  To further explain and clarify:-

(a) At the Beijing Meeting in May/June 2007, KC Lam clearly represented that eBiz was already generating significant revenue and will shortly generate even more substantial revenues (and not merely that it may potentially generate revenue in the future). …”

589.  In cross-examination, it was pointed out to him that he did not say in para 115 of his first statement that KC Lam said those things at the Beijing meeting.  Unlike the 8^th plaintiff, he gave a lengthy response:

“Okay. One reason I could think of is because during the span of time, because of the case we do have exchanges with other plaintiffs. There’s also discovery of more documents which I think is part of the case and this is where I could have then picked up some of the information during that span of time, yes. So it is where I think by picking up information that are in the possession of other plaintiffs and this is where I managed, not because of my memory but because of information that I gathered from other plaintiffs.

…

… I could not exactly remember what was presented during the Beijing trip. I mean, even one day, two days, I lost track even of that, and for that reason I have left out the details initially in my statement because I like to rely on those facts that I have, especially coming from emails and the documents that I have, yes, so therefore I leave it out.

Then I think given the span of the few years between the earlier statement and the supplementary, then this way I got, in a way, refreshed and again, I mean, if you ask me today was this presented during that session, to be frank, I couldn’t remember.” (emphasis added)

590.  On these answers, Mr Chain submits that the 4^th plaintiff should be taken to mean that he was refreshing his own memory by reference to corroborative information from other plaintiffs, which is entirely legitimate.  I do not agree with this submission.  The 4^th plaintiff’s answer is very clear.  He did not have memory of what was said at the Beijing meeting – see the underlined words.  Contrary to Mr Chain’s submission, his memory was not refreshed.  He was simply reciting what other said when he had no personal memory. 

591.  On the whole, I consider that there are ample materials before the court which show that some of the evidence given by the plaintiffs, which go to the crux of some of the Fraudulent Misrepresentation, was not in fact based on their own recollection of events, but was constructed subsequently based on documents and information obtained from others.  No weight should be given to such constructed evidence.  Not only that, the overall credibility and reliability of the plaintiffs’ evidence is much impinged.

The plaintiffs’ case of fraud is at odds with contemporaneous documents

592.  Where there exist contemporaneous documents, they would very often be useful tools which can be used to assess the credibility of rival narratives of events.  In this case, I consider that the following are some of the most material contemporaneous documents which I should take into account to assess the parties’ cases (and the contents of which are reproduced in the paragraphs stated in brackets below):

(1)  the 31 October 2006 email (para 358);

(2)  the 2005 audited statements;

(3)  the June 2006 management accounts;

(4)  the June 2006 Key Points 2 (para 125);

(5)  the 28 September 2006 group email (para 354);

(6)  the BI Appraisals report (para 367); and

(7)  the first Grant Sherman report (para 368).

593.  While I consider that the second Grant Sherman report is also relevant in respect of the question of whether the plaintiffs knew about the start-up nature of eBiz during the material period, I do not include this in the above list mainly because it was only sent to the plaintiffs in late 2010, which was after most of the investments had been made.

594.  The importance of the above documents is obvious in two ways.  A reasonable person who receives and reads some or all of these documents would be able to readily find out (1) the true financial position of eBiz at the time, and/or (2) the fact that documents containing financial information of eBiz had been compiled and were available and that, if they wished, they could ask for copies or follow up in some other way.

595.  The 31 October 2006 email, accompanied by the 2005 audited statements and the June 2006 management accounts, would show that eBiz did not have any significant sales or revenue and was making a substantial loss.  The June 2006 Key Points 2 was stated to have as attachments the “[l]atest Auditor Report by reputable Audit Firm” and the BI Appraisals Report. And, if those attachments were not attached, the document would inform the reader that these documents were available.  Similarly, the 28 September 2006 group email would show that the auditor’s report of eBiz from Deloitte would be ready shortly. The BI Appraisals report and the first Grant Sherman report would show that eBiz was an IT start-up venture and the technology was still “in its infancy”, and that (as of 2008) the company had just launched the WebExpress services and was “still in the initial stage of marketing”.

596.  These contents directly contradict any allegation that eBiz was a wildly successful company, already earning substantial revenue.

(1)  Mr Chain makes a number of forensic points that these documents do not in fact reveal the No Revenue Reality.  Hence, even if they had been sent and read by the plaintiffs, they would not have mattered.  For instance, he says that nowhere in the BI Appraisals report was it mentioned that eBiz had no revenue or minimal revenue. 

(2)  This is an attempt to downplay the importance of these contemporaneous documents.

(3)  Those forensic arguments cannot stand.  First, the contents are very clear.  Express words, such as “start-up nature” and “infancy” are used and repeated in the valuation reports.  The message conveyed by these reports cannot be mistaken by a reasonable reader.  Second, even some of the plaintiffs accepted their significance in cross-examination.

(4)  The 2^nd plaintiff said that if he had read the BI Appraisals report at the time, he would not have invested in eBiz because the report informed him of the risks which would deter him from investing.  See his exchange with counsel in para 168(4) above.

(5)  The 8^th plaintiff made the same point about the BI Appraisals report:

“Q. You would not have invested in it because it was risky, had you read the report at the material time; isn’t that what you are saying?

A. Well, I have said before, if we really had read it, we would not have invested in it.

Q. Because it’s risky; right?

A. Correct. Well, later on we came to know that that’s the case and it’s just a mess.  I stated there.”

(6)  When it was put to the 4^th plaintiff that the first Grant Sherman report was an important document for anyone who was considering whether to invest in eBiz, he readily agreed.

597.  Hence, if, according to KC Lam and eBiz’s case, Desmond Yue in fact had given or sent copies of these material contemporaneous documents to the plaintiffs during the material period, that would severely, if not completely, undermine (1) the plaintiffs’ case on the Revenue Misrepresentation, and (2) the alleged fraudulent intent on the part of the defendants.

598.  Now in this action there are heated disputes over what had been sent to the plaintiffs and, if sent, whether and to what extent they had read them.  I do not need to decide that now.  Even on the plaintiffs’ own case, some of the material contemporaneous documents identified above were in fact sent to some of the plaintiffs during the material period. Regardless of whether they had been read or not, the significance of this is that the very act of sending the documents itself is very much inconsistent with the making of the Revenue Misrepresentation and KC Lam, Desmond Yue and Tommy Lai being fraudsters.

599.  One asks rhetorically – if KC Lam and Desmond Yue were acting in concert and were relentlessly pushing a “seamless, continuous and extended sales pitch” saying falsely that eBiz was a wildly successful company earning substantial revenue, why would they at the same time send documents to some of the plaintiffs which would have the effect of disclosing the true financial position of eBiz?  If they were relentlessly applying the Indoctrination Method to the plaintiffs making, repeating, expanding, refining, and bolstering the Fraudulent Misrepresentations on almost every occasion of contact, why would they at the same time send documents to some of the plaintiffs highlighting the start-up nature of eBiz and the high risks associated with an investment in it?

600.  There is never any suggestion in this action that KC Lam and Desmond Yue sent these documents to some of the plaintiffs knowing that they would not be read so that they would remain in the dark as to the true state of the company.  Furthermore, the personal background of the plaintiffs is relevant here.  Some of them are highly educated.  Some of them run their own businesses.  Some hold respectable positions in their specialised fields.  Their investments are in the range of hundreds of thousands of dollars to a few million dollars, which cannot be described as insignificant.  If KC Lam and Desmond Yue were really trying to cheat them, the two of them could not have assumed that the plaintiffs would not read the documents or they would not have asked for copies of documents.

601.  On this issue, Mr Chain makes the following submission:

(1)  It is KC Lam’s own testimony that he was very much in favour of a policy of “complete transparency and disclosure” to eBiz’s investors.

(2)  Yet, it is plain that he failed to put that policy into action.  He merely relied on Desmond Yue as the middleman for the Singapore investors.  If they wanted information, they would ask Desmond Yue who would then ask KC Lam.

(3)  There is no proactive disclosure by KC Lam.  He disclosed in a piecemeal, haphazard and ad hoc fashion when it comes to providing documents to the plaintiffs.

602.  I do not think that this submission advances the plaintiffs’ case in any way.  Their case against the defendants is mounted solely in fraud.  Being piecemeal, haphazard and ad hoc is not fraud. That may suggest that KC Lam was not being careful with the disclosure of documents.  (I am not making a finding to that effect here.)  But the plaintiffs are suing him for fraudulent misrepresentations, not negligent misrepresentations. 

603.  For the reasons given above, I am of the view that the plaintiffs’ case on the Revenue Misrepresentation and their overall case of fraud is at odds with the contemporaneous documents. 

KC Lam’s evidence is generally consistent internally and more coherent and inherently plausible than the plaintiffs’

604.  In my view, what differentiates KC Lam’s evidence from the plaintiffs’ is that the former has much fewer internal inconsistencies than the latter.  Taking a step back and applying a holistic mindset to the evidence, one gets a distinct impression that the plaintiffs’ case is tainted with contradictions and inconsistencies and the contradictions are stark and the inconsistencies many and serious.  On the other hand, KC Lam’s evidence seems to be generally consistent internally.

605.  As regards consistency, the main criticism made by Mr Chain against KC Lam’s evidence is that KC Lam is backtracking from his original case that the plaintiffs’ investments are high risk when it is indisputable that the investments made under the Investment Structure is low-risk.  His argument is as follows.

606.  In this action, KC Lam has all along emphasised that the pre-IPO investment in eBiz carried high risks.  That is what he said in both his witness statements, which contention is repeated in his opening submissions.  However, as reflected in the undisputed legal documentation, an investment under the Investment Structure is practically risk-free.  Upon being cross-examined on this, he eventually accepted that the investments under the Investment Structure are not high-risk investments.  In his own words, the protection offered by the Investment Structure is “watertight”.

607.  Here is the exchange at trial:

“Q. So the investment of the plaintiffs through this investment structure is strongly protected against the risk of an IPO not occurring; do you agree?

A. Yes. And I admire very much all these very experienced investors, for them to be able to come up with such plan.

…

Q So the very strong protections given to the lender against the risk of the IPO failing will persist regardless of whether a conversion notice is given. Do you agree?

A. I understand.

Q. So, under this loan agreement, the risk in a pre-IPO investment that an IPO might not occur is very strongly alleviated; do you agree?

A. Yes, I agree.

Q. So, if someone invests through this investment structure, it is no longer a high-risk investment; do you agree?

A. Because at that moment, they are loanholders, and they are very mature and smart investors. So, well, this loan agreement, it’s very watertight, so they could think about it. Even though the IPO didn’t occur, then that could still be revived.

I am engaged in real property business and I admire very much this entire scheme of them.” (emphasis added)

608.  This, Mr Chain argues, represents a significant shift and a complete contradiction of KC Lam’s original case that the plaintiffs were disgruntled investors bringing a baseless claim to recover losses which they suffered in a “high risk and high return” investment.    

609.  I do not agree that there is any backtracking. 

610.  The starting point here must be that without the Investment Structure, a pre-IPO investment into eBiz is high risk by nature. KC Lam and eBiz’s case is that it is precisely because of this high-risk nature that he agreed with the plaintiffs to put in place the Investment Structure in order give them more time to assess the business potential of eBiz.  While the Investment Structure is in place, the investment is low risk.  That is the whole point of the design.  Hence, on KC Lam and eBiz’s own case, there is nothing contradictory in KC Lam accepting that an investment under the Investment Structure is low risk or risk-free. 

611.  Equally importantly, upon the signing of the Termination Agreements, the high-risk nature of the plaintiffs’ investments springs back.  It is KC Lam and eBiz’s case that the plaintiffs made the commercial decision in relation to the Termination Agreements and hence voluntarily took on the risks.   

612.  Apart from it being generally consistent internally, I find that KC Lam and eBiz’s case is also, on the whole, more coherent and inherently plausible than the plaintiffs’.  My only reservation is that there are a couple of new revelations made by KC Lam in his cross-examination and the doubt I have is why they were not made earlier if they are true.  But I will return to this shortly below.  Separately, the attribution point, ie whether he had any part to play in some of the documents given to the plaintiffs by Desmond Yue such that he should bear responsibility for the contents will have to be considered with care.

613.  At this juncture, I need to deal with a forensic point made by Mr Chain on KC Lam’s evidence in relation to what he said orally to the plaintiffs during the material period.  He submits as follows:

(1)  Desmond Yue was appointed as an adviser of eBiz in 2006 and was later employed by it as general manager in 2009.

(2)  Desmond Yue’s sole source of information concerning eBiz was KC Lam.

(3)  Both of them were responsible for investor relations.

(4)  They therefore should have been singing the same tune and saying the same things to the plaintiffs, whether orally or in writing.

(5)  The documents which Desmond Yue showed to the plaintiffs in the sales pitch are therefore contemporaneous documents against which KC Lam’s case can be tested.

(6)  Where KC Lam now alleges that he had said a certain thing to the plaintiffs orally and the content of that is inconsistent with these documents, then KC Lam’s allegation is open to doubt because if the plaintiffs were told significantly different things from what was stated in the documents, they would logically have raised queries with him.  But that did not happen.  The inescapable conclusion is that KC Lam must have been saying things similar to what was stated in the documents shown to the plaintiffs by Desmond Yue.

(7)  One of the examples given by Mr Chain to illustrate the point is point 6 of the eBiz Promotional Brochure regarding China Telecom (see para 142 above).  KC Lam has now effectively admitted that this passage is not correct.  It can therefore be deduced that at the time, KC Lam was saying something similar to the passage about China Telecom, for otherwise the plaintiffs would have raised queries over the passage.

(8)  Another example is point 5 in the eBiz Promotional Brochure (see para 142 above) which stated that sales via agreement with Digital China “will reach RMB 100,000,000 per annum”.  This is significantly different from KC Lam’s evidence that he told the plaintiffs from day one that eBiz would not be able to generate significant revenue in the first few years of its operation.

(9)  By comparing KC Lam’s allegation against the contemporaneous documents, one can logically deduce that KC Lam is not telling the truth.

614.  I can understand the logic of this submission. It is also in line with the well-recognised approach that the court should test a party’s case against contemporaneous documents where available and relevant. However, the submission has its limitations in the present case. 

615.  In the China Telecom example, it appears to be KC Lam’s case that he did not orally say anything about China Telecom.  If that is true, this would not be a situation where KC Lam would be saying significantly different things from what was stated in the contemporaneous documents.  Hence, there would be no room for the plaintiffs to complain about any inconsistency or inaccuracy in the first place.

616.  In the Digital China example, KC Lam’s evidence is that he repeatedly told the plaintiffs that eBiz was a start-up company with no track record.  On one view, it may be argued that he was saying something significantly different from point 5 of the eBiz Promotional Brochure, as submitted by Mr Chain.  However, on another view, it may be said that there is no inconsistency between what KC Lam said and the contents of point 5 because in light of what he said, that point would be taken to mean that eBiz will at some point in the future generate substantial sales, but not now.  

617.  Mr Chain’s submission takes the contemporaneous documents as the starting point of the analysis and uses that to test KC Lam’s evidence. However, one can also approach the matter by looking at all the evidence in one go and consider its combined effect.  Different conclusions may flow from the different approaches.  For this reason, I do not consider that much can be gained from this submission in terms of assessing KC Lam’s credibility.

618.  On the whole, I accept that the matters set out in the “Important facts providing the context for KC Lam and eBiz’s case” section, with the exception of para 466 concerning Freddy Ong and para 470 regarding KC Lam’s own personal investments, provide a credible context for KC Lam and eBiz’s case.  These matters are supported by contemporaneous documents.  Some of them are supported by testimony of witnesses who appear to be independent and whose evidence is largely unchallenged and is inherently credible.  I accept the evidence of Prof Chen, Ho Hau Wong, Andrew Lee and Keith Yan (not including his evidence in relation to the working capital point) as true.  It is true, as submitted by Mr Chain, that these witnesses are not in a position to testify on the core issue in this action, namely what KC Lam did tell or did not tell the plaintiffs during the material period.  However, they are in a position to testify on other less core aspects which provided the important context for KC Lam and eBiz’s case. 

619.  KC Lam made a couple of new revelations in his cross-examination.  One of them is his allegation that it was the plaintiffs (among other investors) who devised and came up with the idea which materialised into the Investment Structure.  See the extract reproduced in para 607 above, in which he said twice that he admired the investors for that. Another new revelation concerns the point that in about July and August 2009, the conversion formula was changed from opening price to listing price.  KC Lam said for the first time that it might have been the investors who proposed this change. 

620.  As I have already commented above, if these new revelations are true, why didn’t KC Lam mention them before the trial?  As a witness, he certainly came across as smart, astute, articulate and careful.  He would often give lengthy answers with many details.  He is very familiar with the legal documents.  At one point in the trial, I described him as “a very keen communicator”.  Previously, he made two very long witness statements, covering all aspects of his case in detail.  Hence, I find it puzzling why he would only make those allegations for the first time in the trial.  I have reservations about the truthfulness of those allegations.  I am not prepared to make any factual finding in this regard.

621.  Notwithstanding that, for the reasons given above, I find that KC Lam’s case, on the whole, is more coherent and inherently plausible than the plaintiffs’.

The plaintiffs fails to show that KC Lam was involved in preparing the key documents concerning the Fraudulent Misrepresentations

622.  An issue arises as to whether the plaintiffs can use the key documents concerning the Fraudulent Misrepresentations which were given to them by Desmond Yue against KC Lam.  These documents include:

(1)  the General Information on Pre-IPO Investment;

(2)  the June 2006 Brochure;

(3)  the June 2006 Key Points 1;

(4)  the June 2006 Key Points 2;

(5)  the January 2007 Info Memo; and

(6)  other emails referred to in “The Plaintiffs’ case” section.

623.  KC Lam categorically denies any involvement in the preparation or review of these documents.  His evidence is that he did not give any instructions to Desmond Yue to produce them, nor did he review them prior to their circulation to the plaintiffs.  Desmond Yue had liberty to prepare presentation material as he saw fit as his role was to identify and introduce investors to eBiz.  And he put together those documents on his own volition.  On that evidential basis, Mr Wong submits that KC Lam should not be liable for the contents of the documents.

624.  On the other hand, it is the plaintiffs’ case that Desmond Yue was a subordinate of KC Lam.  They observed that Desmond Yue would faithfully follow KC Lam’s instructions.  Desmond Yue acted as a messenger, passing messages between KC Lam and the Singapore investors.  It is therefore absurd for KC Lam to now disavow any responsibility for the above documents.  He should not be allowed to shift all the blame to Desmond Yue.

625.  The resolution of this issue turns on inherent probabilities and the overall credibility of the plaintiffs and KC Lam.  The relevant matters which I should take into account include the background and role of Desmond Yue and his relationship with KC Lam.

626.  The starting point of the discussion is the objective fact that before he acted as the adviser to eBiz, Desmond Yue was completely new to the company and all information which he later had about eBiz must have come from KC Lam.  It is KC Lam’s own evidence that he would keep Desmond Yue updated of eBiz’s business development so that he could divulge proper information to the investors in Singapore.

627.  The material question is whether the documents were compiled under the instructions of KC Lam or subject to his review or vetting prior to distribution to the plaintiffs.

628.  On the one hand, it is inherently plausible that KC Lam would have a role to play in these documents because, as Mr Chain submits, he would be concerned about raising funds from the Singapore investors and he would therefore want to know what Desmond Yue was communicating to the Singapore investors.  On the other hand, Desmond Yue worked as a remisier at OCBC Securities and had professional knowledge about investments in general. He had existing relationships with some of the plaintiffs.  He would also receive handsome commissions for introducing investors to eBiz.  It is therefore also inherently plausible, as Mr Wong submits, that he acted on his own initiatives when compiling the documents and came up with his own presentation materials in a manner which he considered best to attract investments, as that was what he was appointed as an adviser for in the first place.

629.  On this issue, the burden is on the plaintiffs to show that KC Lam had a part to play in the documents which they now rely on in support of the Fraudulent Misrepresentations.  As pointed out by Mr Wong, there is no documentary evidence at all which shows that Desmond Yue prepared the documents under KC Lam’s instructions or had sought his approval.  Even though the plaintiffs have the benefit of receiving two large bags of documents from Desmond Yue, there is no one single email disclosed in this action showing communication between Desmond Yue and KC Lam in relation to these documents.

630.  It should also be borne in mind that the issue forms part of the plaintiffs’ case of fraud against KC Lam.  As such, the plaintiffs should be adducing compelling and cogent evidence in support of their position on this issue.

631.  On the whole, I consider that what they have come up with in terms of evidence does not measure up to the “compelling and cogent” requirement.  They have therefore failed to prove that KC Lam was involved in preparing the key documents concerning the Fraudulent Misrepresentations.  For that reason, KC Lam should not be held liable for misrepresentation, if any, arising out of those documents.

632.  In coming to the above conclusion, I have considered Mr Chain’s submission that KC Lam is cherry-picking.  When it suits his purpose and is advantageous to his case, he would rely on documents which Desmond Yue passed to the plaintiffs, eg the 2005 audited statements. When it is disadvantageous, he would disclaim responsibility and disavow any role in those documents which may incriminate him.

633.  I think the submission is helpful in the sense that it is a way to cross-check the conclusion by looking at the evidence holistically, instead of focusing on each document in isolation.  In my view, it is legitimate for KC Lam to rely on those documents which had been indisputably sent to at least some of the plaintiffs.  On the other hand, as analysed above, he has his own case about the other documents, which I have found to be inherently plausible.  It is therefore also quite legitimate for him to put forward that case.  Hence, I would say that the apparently different treatments afforded to the two groups of documents do not come about as a result of cherry-picking.

Tommy Lai is a credible witness

634.  I find Tommy Lai to be a credible witness.  His case is consistent throughout these proceedings.  His evidence is straightforward, consistent, coherent, inherently plausible and well supported by contemporaneous documents. 

635.  As discussed above, the plaintiffs’ pleaded case against him fails on their own evidence. 

Other evidential points

636.  I have set out above the matters which I believe shed most light on the assessment of credibility.  I have also taken into account other matters which have been extensively covered in parties’ closing submissions in coming to my conclusion on credibility.  Among them, I would highlight the following, as they have been addressed in detail or repeatedly in cross-examination or closing submissions or both.  However, I am of the view that in terms of assessment of credibility, these matters do not carry as much weight as the matters set out in the previous subsections.  I shall briefly state my views below.

637.  First, as regards the plaintiffs’ case on the False IPO Notification, some of them say that their understanding at that time was that the launch of the IPO would be definite.  But allegations such as these are contradictory to the contents of the comfort letters which, as part of the agreed facts, were sent to most of the plaintiffs and which expressly contemplated the possibility that the IPO might not happen within one year. This is another instance of contradiction in the plaintiffs’ case. 

638.  Second, Mr Wong submits that the use of the standard formula that the plaintiffs did not read the “fine print” of the valuation reports is a striking illustration of the falsities common to many or all of the plaintiffs’ evidence.  First, there is simply no “fine print” as such as the body of each of the three reports was typeset in the same font size.  Second, as revealed in cross-examination, the individual plaintiffs did not actually know what the term means and ultimately had to abandon it in favour of new versions.  

639.  On this point, the relevant issue in dispute is whether and to what extent each of the plaintiffs had read the valuation reports.  However, I am inclined to think this issue cannot be helpfully resolved by just focusing on the use of the term “fine print”.  This is a term adopted in all the witness statements and is likely to be an expression come up with by the lawyers.  I also tend to agree with Mr Chain’s submission that it is only a figure of speech to convey the message that the plaintiffs generally did not read or take a close look at the finer details of the valuation reports.  Whether that message is true factually is another matter but the use of the expression itself does not, in my view, shed much light on it.  However, what is striking from this line of cross-examination is that some of the answers given by the plaintiffs seem inherently incredible.  For example, the 1^st plaintiff, a matrimonial lawyer, insisted that she did not read the BI Appraisals report and was only interested in the valuation figure.  See para 167(3).  The 9^th plaintiff, an IT specialist, insisted that she did not read the report at all after Desmond Yue told her the valuation figure.  See para 175 above.

640.  Third, KC Lam and eBiz highlight as one of the 12 “Objective Undisputed or Indisputable Facts” that KC Lam personally made substantial investments in eBiz.  This is relied on as part of the factual context to show that there is no Fraudulent Scheme as alleged.  There is a dispute as to precisely how much KC Lam had put in eBiz and how much he had taken money out by way of, eg, consultancy fees over the years.  In my view, that has not been a live issue between the parties and the information before the court is bound to be incomplete.  It would not be appropriate for the court to come to any finding on this and then to weigh it as one of the factors in the deliberation exercise.  This allegation therefore has little weight in my assessment of the parties’ cases.

641.  Fourth, KC Lam and eBiz rely on the email from Freddy Ong which shows that he knew that eBiz had no profit.  The point here is that it is inherently improbable that KC Lam and eBiz would be deceiving some investors (ie the plaintiffs) but not the others (eg Freddy Ong) about the true financial state of the company. 

642.  Prima facie, the contents of the email support KC Lam and eBiz’s position.  It should therefore carry some weight.  However, Freddy Ong has not been called to testify for KC Lam and eBiz.  In the materials before the court, there is no information about him.  KC Lam has not said anything about the circumstances in which the email was sent.  None of these could be explored and tested in cross-examination.  As such, the weight which can be given to the email must be limited.

643.  Fifth, KC Lam and eBiz highlight that Justin Lye and Philip Ng worked closely with Desmond Yue, Justin Lye being described as Desmond Yue’s placement assistant in some of the emails.  Justin Lye and Philip Ng would therefore have the same information about eBiz as Desmond Yue. Since Justin Lye and Philip Ng had close relationships with some of the plaintiffs, it is submitted that they should share such information with the plaintiffs.  That would then debunk the plaintiffs’ case on their knowledge of the true financial state of eBiz.

644.  Again, I do not consider that one can make much out of this line of argument.  It is true that there are some emails showing the involvement of Justin Lye and Philip Ng.  How they related information to the plaintiffs during the material period is effectively an unknown.  Any inference which can be drawn from these emails would not carry a lot of weight.

Overall assessment

645.  For the above reasons, I conclude that KC Lam and eBiz’s case is generally more credible than the plaintiffs’, and Tommy Lai’s case is also more credible than the plaintiffs’.

FACTUAL FINDINGS

646.  Accordingly, to the extent that their evidence is in conflict, I prefer KC Lam and eBiz’s to the plaintiffs’.  I find the former as facts, subject to any contrary finding specified below.  I accept Tommy Lai’s evidence in whole and find it as facts.  More specifically, I find the following as facts.

647.  Throughout the material period, KC Lam made known to the plaintiffs that eBiz was a start-up IT business, it had limited track record of business turnover, but its attraction would lie in its business potential, and an investment in it would carry high risks but potentially high returns.  He told the plaintiffs on various occasions that eBiz had only mimimal sales and revenue and it would need to generate funding from IPO in order to implement aggressive sales and marketing programmes. 

648.  The plaintiffs all along knew of eBiz’s lack of revenue or track record.  With their background, they understood the risks associated with investments in the company. 

649.  KC Lam did not make the oral representations as alleged under the Revenue Misrepresentation, the High Profile Partners Misrepresentation, the High Profile Investors Misrepresentation, the KC Lam Credentials Misrepresentation, the Car Park Security Misrepresentation and the IPO Prospects Misrepresentation.

650.  KC Lam would have made comments orally to the effect that eBiz’s business was good enough to proceed to IPO within two to three years, and a successful listing would very likely lead to investment returns of 5 to 10 times, or even 10 to 20 times.  However, such comments would be made with qualifications that the returns would depend on whether the company could be successfully listed, and that in turn would depend not on track record of sales revenue, but on its business potential and other factors like good timing and market conditions, supportive investors and quality management. 

651.  KC Lam never mentioned that he was the one who founded or set up Ninetowns.  He would mention only about the role he played in the successful listing of Ninetowns, namely that he introduced strategic investors to Ninetowns to support its business and enable it to be listed on the NASDAQ Stock Market in 2004.

652.  The 31 October 2006 email, with its attachments including the 2005 audited statements and the June 2006 management accounts, was sent to the 6^th plaintiff.  Emails with the same or similar contents and attachments were sent to the other plaintiffs.  In coming to this finding, I have accepted Mr Wong’s submissions that:

(1)  There is no good reason why these documents were selectively sent to one particular plaintiff but not the others. 

(2)  It is apparent from the series of emails sent by Desmond Yue from mid-2006 to end of October 2006 that he was trying to communicate with the plaintiffs concerning the Ocean Gate investment and the 31 October 2006 email obviously formed part of that series as its purpose was also to provide the investors with information about the Ocean Gate investment.

(3)  It is in fact the evidence of some of the plaintiffs that they received emails, which on their face were only sent to the 6^th plaintiff’s Hotmail address.  For instance, the 1^st plaintiff said in her witness statement that she received the email concerning the Sultan of Brunei (see para 192(1) above).  But that email shows that the sole recipient was the 6^th plaintiff.  It must mean that there was another email of the same content which was sent to the 1^st plaintiff by Desmond Yue.  For some reason, a copy has not been disclosed in this action.  There are other plaintiffs who gave similar evidence about other emails, eg, the 3^rd and 9^th plaintiffs.

653.  Similarly, the BI Appraisals report and the first and second Grant Sherman reports were shown, sent or given to all the plaintiffs as there is no good reason why they would be selectively given to some but not all of the investors.

654.  The BI Appraisals report and the first and second Grant Sherman reports were made by independent valuers.  The valuations took into account the business potential of eBiz.  Grant Sherman conducted their own investigations and tested the assumptions and information provided by eBiz.  The projected sales and profit figures provided by Tommy Lai to Grant Sherman were based on, among other things, the business potential of eBiz and the huge market demand.

655.  The purpose of the Investment Structure was to hedge against the risks associated with a pre-IPO investment into eBiz and allow more time for the plaintiffs to consider whether in the end they would choose shares in eBiz or repayment of the loans.  However, I reject KC Lam’s allegation that the structure was devised by the Singapore investors.

656.  In July and August 2009, following the appointment of Collins Stewart as full sponsor, the notification letters from Sun Dynamic dated 22 August 2009 was sent to the SPVs.  The plaintiffs agreed to the new commercial arrangements as reflected in the Termination Agreements. With their background, the plaintiffs were capable of understanding and understood what the new terms were, including the immediate return of the car parks to Strong Man and the superseding of the revival clause.  They made that commercial decision voluntarily as the atmosphere at that time was that that everyone expected that the IPO would very likely occur following the appointment of Collins Stewart.  But they did not act on the understanding that the IPO would definitely occur.  On the other hand, I reject KC Lam’s allegation that the change from opening price to listing price in the new arrangements were proposed by the Singapore investors.

657.  The IPO eventually failed.  KC Lam announced to the plaintiffs in February 2011 that the IPO project had been cancelled.

658.  WebExpress is genuine product.  eBiz was pursued as a genuine business operation.  It had formed partnerships with a number of well-known entities according to the terms it had signed with them.  The IPO exercise was bona fide.  I reject the plaintiffs’ suggestion that the whole thing was a high-risk gamble of KC Lam to “hook” a tycoon investor by making use of their monies. 

659.  Tommy Lai was not responsible for investor relations.  He had only occasional and infrequent contact with the plaintiffs during the material period.  He did not make the misrepresentations to the 1^st, 5^th and 7^th defendants as alleged. 

RULINGS

660.  Applying the above factual findings and for the reasons set out below, the plaintiffs have failed to make out each of their claims based on the Fraudulent Misrepresentations against each of KC Lam and eBiz and Tommy Lai. 

661.  The following reasoning applies to each of the Fraudulent Misrepresentations:

(1)  As found, the oral representations allegedly made by KC Lam and Tommy Lai were not made.

(2)  KC Lam should not be held liable for the contents of the key documents concerning the Fraudulent Misrepresentations shown by Desmond Yue to the plaintiffs.

(3)  Where there are no further written documents relied on by the plaintiffs in respect of a particular Fraudulent Misrepresentation, the claims under that head must fail as no representation was made in the first place.

(4)  Where there are such further written documents, they are not to be looked at in isolation for the purpose of determining whether they convey the meaning alleged by the plaintiffs.  The court should consider the totality of the communications.  The things which are found to have been said by KC Lam throughout the material period and these written documents are to be looked at on a cumulative basis when the court decides what the combined effect is: see, eg, Spencer Bower & Handley, Actionable Misrepresentation (5^th ed) at paras 4.24 and 6.11.

662.  The Revenue Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies.  If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in paras 417 to 422 above. In addition, against the factual findings made in paras 647 to 649 above, a reasonable reader would not understand the key documents relied on by the plaintiffs to mean that eBiz was already generating or would generate substantial revenue as a matter of guaranteed certainty.

663.  The Company Valuation Misrepresentation is not made out.  The dispute here is whether it was false.  The plaintiffs have failed to prove that there is no or no sufficient factual basis for the projected sales and revenue figures provided to the valuers by relying solely on the fact that there is a huge disparity between the projected figures and the actual ones.  This is because, as found, eBiz was an IT start-up and the projected figures were arrived at by taking into account, among other things, the business potential of the company.

664.  The High Profile Partners Misrepresentation is not made out.  The reasoning in para 661(1) to (3) applies.  If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in para 435 above. 

665.  The High Profile Investors Misrepresentation is not made out.  The reasoning in para 661(1) to (3) applies.  If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in paras 440 to 442 above.  In addition, as regards the claim concerning Cheng Yu Tung, I have to say that the meaning of Desmond Yue’s email (“Dr Cheng Yu Tung who participates in our eBiz project will be great”) is unclear.  The sentence is ungrammatical and the meaning is rendered unclear for that reason.  If the emphasis is put on the word “participates”, the sentence may mean Cheng Yu Tung has already participated and it is therefore good news.  If the emphasis is put on the word “will be great”, the sentence may mean that he has not yet participated but if he does, it would be good news.  There is simply no clear meaning as conveyed by this email which would give rise to an actionable misrepresentation.

666.  The KC Lam Credentials Misrepresentation is not made out.  The reasoning in para 661(1) to (3) applies, except in the case of the 2005 Magazine Article.  In respect of that exception, I agree with the point made by KC Lam and eBiz in para 447 above.  If I am wrong about the attribution point, I agree with the points made in para 450 above in respect of the General Information on Pre-IPO Investment.  In respect of the June 2006 Key Points 1, the remark, “Company Management with the listing experience in Nasdaq, USA”, is admitted to be false.  However, that needs to be considered in conjunction with what was said by KC Lam to the plaintiffs at the time.  I am of the view that the totality of the communications would not give rise to the representation that KC Lam was the company management, the driving force or the main person behind the listing of Ninetowns.

667.  The Car Park Security Misrepresentation is not made out.  The reasoning in para 661(1) to (3) applies.  If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in para 453 above. 

668.  The IPO Prospects Misrepresentation is not made out. 

(1)  I agree with the primary position taken by KC Lam and eBiz.  The words “on its own” simply have no well-defined meaning and cannot give rise to an actionable representation.  There is no justification for interpreting it according to the latest formulation advanced by Mr Chain. 

(2)  In any event, that formulation is not made out even on the plaintiffs’ own evidence.  There is nothing to show that KC Lam and eBiz had ever conveyed the message that eBiz could list without the need for any additional external funding or partnership.

(3)  Alternatively, the IPO Prospects Misrepresentation is premised on the Revenue Misrepresentation, the Company Valuation Misrepresentation, the High Profile Investors Misrepresentation and the High Profile Partners Misrepresentation.  I have already rejected these claims.  It follows that the IPO Prospects Misrepresentation also fails.

(4)  Further alternatively, para 661(1) to (3) applies. 

669.  As regards Tommy Lai, in light of my factual findings concerning him, the misrepresentation claims made by 1^st, 5^th and 7^th plaintiffs against him also fail.

670.  As I have found that the Fraudulent Misrepresentations were not made, the Fraudulent Scheme is not proved.  The plaintiffs have failed to prove fraud against each of KC Lam, eBiz and Tommy Lai.  None of them should be held liable for the investment losses suffered by the plaintiffs.

CONCLUSION

671.  I dismiss the action against KC Lam, eBiz and Tommy Lai. 

672.  I make an order nisi that the plaintiffs do pay the costs of KC Lam and eBiz and Tommy Lai in this action, including all reserved costs, in each case to be taxed on an indemnity basis if not agreed, with a certificate for two counsel.  The indemnity costs are asked for by both KC Lam and eBiz and Tommy Lai.  In this action, the plaintiffs make serious allegations of fraud against the defendants.  However, their evidence fall far short of what is required in this type of cases.  Worse still, I have found that some of their evidence, which goes to the core of the disputes, are retrospectively “constructed” without the personal recollection of the person who puts it forward.  There was also substantial delay on the part of the plaintiffs to bring the action to trial.  They made very little progress between 2013 and 2018.  When all these matters are taken into account, provisionally, I consider that an indemnity costs order is justified.