FIRST ASIA FINANCE LTD v. TSOI TIN KWAN FANNY

HCA 1070/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1070 OF 2011

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ACTION NO 1589 OF 2011

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ACTION NO 1774 OF 2011

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(HEARD TOGETHER)

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J U D G M E N T

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A. INTRODUCTION

1.  These proceedings arise out of the sale and purchase of the entire shareholding in a Hong Kong incorporated company known as Galaxy Garment Limited (“Galaxy”).  The issues in the three High Court actions are inter‑related and the actions were ordered to be tried and heard together by the orders of Master Au Yeung dated 22 July 2013.

B. THE RELEVANT FACTUAL BACKGROUND

B1. Galaxy Garment Limited

2.  At all the material times, Galaxy is and was the registered owner of a building at No 8 Fui Yiu Kok Street, Tsuen Wan, New Territories (“the Property”).

3.  At the material times up until 28 February 2011, Mr Kuthoor Shanty Bernard (“Mr Kuthoor”) was:

(1) the registered owner of all those 10,000,000 ordinary shares in the issued share capital of Galaxy;

(2) the registered owner of all that one ordinary share in the issued share capital of Paris Sky Limited (“Paris Sky”), a company incorporated under the laws of the Republic of Marshall Islands; and

(3) the sole director of both Galaxy and Paris Sky.

4.  At all material times, Paris Sky is and was the registered owner of all those 90,000,000 ordinary shares in the issued share capital of Galaxy.

B2. First Asia Group of Companies

5.  First Asia Holdings Limited (“FA Holdings”) is an investment holding company incorporated under the laws of Canada and listed on the OTC market of the United States.  Through its various subsidiaries, it carries on property development and regulated money lending business in Hong Kong.

6.  Vagas Lane Limited (“Vagas Lane”) is a company incorporated under the laws of the Republic of Marshall Islands.  At all material times:

(1) Vagas Lane’s sole shareholder is and was FA Holdings; and

(2) Vagas Lane’s sole director is and was Ms Luk Lai Ching Kimmy (“Ms Luk”).

7.  First Asia Finance Limited (“FA Finance”) is a company incorporated under the laws of Hong Kong.  At the material times:

(1) FA Finance is and was a money lender within the meaning under the Money Lenders Ordinance (Cap 163);

(2) FA Finance’s sole shareholder is and was Vagas Lane; and

(3) FA Finance’s sole director is and was Ms Luk.

B3.    The agreements made on 10 December 2010

8.  By an agreement in writing dated 10 December 2010 amongst Vagas Lane, Mr Kuthoor and Galaxy (“the Principal Galaxy Agreement”), Mr Kuthoor agreed to sell and Vagas Lane agreed to purchase 10,000,000 shares in Galaxy (“the Galaxy Shares”) for HK$10,000,000 in cash subject to the terms and conditions of the agreement.

9.  By an agreement in writing dated 10 December 2010 amongst Vagas Lane, Mr Kuthoor and Paris Sky (“the Principal Paris Sky Agreement”), Mr Kuthoor agreed to sell and Vagas Lane agreed to purchase one share in Paris Sky (“the Paris Sky Share”) for HK$130,000,000 subject to the terms and conditions of the agreement.  The HK$130,000,000 was agreed under this agreement to be paid by HK$90,000,000 in cash and an allotment of shares equivalent of HK$40,000,000 (“the Allotted Shares”) in a company which was subsequently nominated to be FA Holdings.

10.  Under the Principal Galaxy Agreement and the Principal Paris Sky Agreement, the completion date was agreed to be 30 June 2011.

B4. The Supplemental Agreements made on 28 February 2011

11.  The Principal Galaxy Agreement was supplemented by a supplemental agreement in writing dated 28 February 2011 amongst Vagas Lane, Mr Kuthoor and Galaxy (“the Supplemental Galaxy Agreement”).

12.  The Principal Paris Sky Agreement was supplemented by a supplemental agreement in writing dated 28 February 2011 amongst Vagas Lane, Mr Kuthoor and Paris Sky (“the Supplemental Paris Sky Agreement”).

13.  In both supplemental agreements, the parties, amongst other things, confirmed the advancement of the completion date to 28 February 2011.

B5. Completion of sale and purchase on 28 February 2011

14.  On 28 February 2011, the sale and purchase of the Galaxy Shares and the Paris Sky Share were completed.

15.  As at the date of completion, there was an outstanding mortgage loan in respect of the Property owing to Lei Shing Hong Credit Ltd (“Lei Shing Hong”) totalling HK$75,987,258.90.  The share price of FA Holdings was agreed to be US$0.50 (equivalent to HK$3.89 at the exchange rate of US$1.00 to HK$7.78). Accordingly, the consideration paid by Vagas Lane to Mr Kuthoor was HK$24,012,741.10 in cash (being HK$100,000,000 - HK$75,987,258.90) plus 10,283,000 shares in FA Holdings (being the Allotted Shares).  As per the instructions of Mr Kuthoor:

(1) 75% of the Allotted Shares (namely 7,712,000 shares) were allotted to Sunford Limited, a company substantially owned and controlled by Mr Kuthoor; and

(2) 25% of the Allotted Shares (namely 2,571,000 shares) were allotted to Golden Tree Limited, a company substantially owned and controlled by Ms Tsoi Tin Kwan Fanny (“Ms Tsoi”).

16.  Upon the completion, Vagas Lane became the sole owner of the entire issued share capital of Galaxy (holding 10% of the entire issued share capital of Galaxy by itself and 90% of the entire issued share capital of Galaxy through Paris Sky), and Mr Kuthoor resigned as the sole director of both Galaxy and Paris Sky.

C. THE THREE HIGH COURT ACTIONS

C1. HCA 1070 of 2011 — HK$7 Million Claim Action

17.  In HCA 1070/2011, FA Finance claims for the return of the sum of HK$7 million against Ms Tsoi, or alternatively for damages in the same amount for Tsoi’s fraudulent misrepresentation, or alternatively a declaration that Ms Tsoi holds the sum and/or its traceable proceeds on trust for FA Finance.  This action is referred to in this judgment as the “$7 Million Claim Action”.

18.  FA Finance’s case can be summarised as follows:

(1) On or about 9 May 2011, Ms Tsoi expressed to Ms Luk that she wished to apply for an interest free loan of HK$10 million for a term of one year from FA Finance.

(2) On or about 18 May 2011, Ms Luk (on behalf of FA Finance) orally agreed with Ms Tsoi that FA Finance would extend to Ms Tsoi a three months’ interest free loan in the amount of HK$7 million from 30 May 2011 with default interest at 4.5% per month, subject to Ms Tsoi signing a loan agreement.

(3) By an email dated 20 May 2011 to Ms Tsoi, Mr Choi Ming Bong Kurt (“Mr Choi”), an employee of FA Finance, attached a draft loan agreement for Ms Tsoi’s signature.

(4) On the same day, Ms Luk signed a cheque drawn in the name of FA Finance from FA Finance’s account for HK$7 million in favour of Ms Tsoi (“the Cheque”), which was handed to Mr Choi for his safekeeping pending the preparation of the draft loan agreement and the subsequent execution by Ms Tsoi.

(5) On 22 May 2011, upon Ms Luk’s request, Mr Choi amended the date of loan and date of repayment in the draft loan agreement and placed the revised loan agreement on Ms Tsoi’s desk for her signature.

(6) On 30 May 2011, Ms Tsoi told Mr Choi that she had already completed all the loan application procedures and documents and instructed Mr Choi to deposit the Cheque into her bank account (“the Representation”), which Mr Choi did.

(7) However, the Representation by Ms Tsoi to Mr Choi was false, as she had never executed any loan agreement containing the material terms.  Furthermore, Ms Tsoi is guilty of misappropriation of the Cheque by making the Representation so as to fraudulently obtain the Cheque from Mr Choi.

(8) By letters dated 2 and 22 June 2011, FA Finance’s solicitors requested Ms Tsoi to execute the loan agreement. However, Ms Tsoi refused to do so and did not reply to the letters.

19.  Ms Tsoi’s pleaded defence can be summarised as follows:

(1) In addition to the consideration of HK$140 million, Ms Luk and her assistant, Mr Sun Cheuk Pak Alan (“Mr Sun”), promised that one bonus share would be issued to every four Allotted Shares so that Ms Tsoi and Mr Kuthoor would end up getting an extra HK$10,000,000 worth of bonus shares (“the Bonus Shares”) (“the 1^st Alleged Oral Agreement”).

(2) Despite repeated requests and demands by Ms Tsoi, Ms Luk and Mr Sun failed to issue or procure the issue of the Bonus Shares.  In mid‑May 2011, Ms Luk and Mr Sun undertook to Ms Tsoi that instead of issuing the Bonus Shares, they would pay a sum of HK$10,000,000 to Ms Tsoi and Mr Kuthoor (“the 2^nd Alleged Oral Agreement”).

(3) The sum of HK$7 million paid by FA Finance to Ms Tsoi was partial payment of a sum of HK$10 million pursuant to the 2^nd Alleged Oral Agreement.

(4) Ms Tsoi denies that she had applied for any loan from FA Finance or that she had made any false representation to Mr Choi. 

(5) Ms Tsoi had relied on the promises given by Ms Luk and Mr Sun pursuant to the 1^st and/or 2^nd Alleged Oral Agreement, and FA Finance is estopped from denying that Ms Tsoi is bound by the two oral agreements.

C2. HCA 1589 of 2011 — the Breach of Warranties Action

20.  In HCA 1589/2011, Vagas Lane claims for damages for breach of the Principal and Supplemental Galaxy Agreements and the Principal and Supplemental Paris Sky Agreements (collectively as “the Agreements”) against Mr Kuthoor.  This action is referred to in this judgment as the “Breach of Warranties Action”.

21.  There are the following terms in the Agreements:

“In reliance on the Warranties made in Clause 5 by the Share Vendor [ie Mr Kuthoor] and upon and subject to the terms and conditions of this Agreement, the Share Vendor shall sell and the Share Purchaser [ie Vagas Lane] or its nominees shall purchase the Sale Shares [i.e. the shares in Galaxy] free from all claims, charges, liens, encumbrances and options of any kind whatsoever but together with all rights attached, accrued or accruing thereto and together with all dividends and distributions declared made or paid or agreed to be made or paid thereon or in respect thereof on or after the date hereof.” [clause 2 of the Principal Galaxy Agreement]

“The Share Vendor hereby represents and warrants to the Share Purchaser that: … (b) the Company [ie Galaxy] has not carried on any business since its incorporation and except for those business activities, contracts and debts expressly disclosed in this Agreement, the Company has not entered into any contracts, and has no liabilities (including tax and contingent liabilities) which are outstanding;” [clause 5.2(b) of the Principal Galaxy Agreement]

“The Share Vendor hereby represents and warrants to the Share Purchaser that: … (f) the Company has no other creditors except those expressly disclosed in this Agreement;” [clause 5.2(f) of the Principal Galaxy Agreement]

“The representations and warranties set out in each sub-clause of Clause 5.2 shall be deemed to be repeated as at Completion as if all references to the date of this Agreement were references to the date of Completion.” [clause 5.3 of the Principal Galaxy Agreement]

“During the period immediately after execution of this Agreement but before Completion, each of the Share Vendor and the Company covenants and undertakes to and in favour of the Share Purchaser that:

(a) the Company shall not conduct any business to the prejudice of the Share Purchaser’s interests hereunder or enter into any contract or commitment of any nature without prior written consent of the Share Purchaser;

…

(h) All outgoings in respect of the Property prior to Completion (without prejudice to the foregoing, including government rates, management fees, property tax and all utilities) shall be borne by the Share Vendor and shall have been paid (provided always if any of such outgoings are not due as at Completion, they may be apportioned with the Share Purchaser on Completion or within forty five days of Completion.”  [clauses 5.4(a) and (h) of the Principal Galaxy Agreement]

“Inreliance on the Warranties made in Clause 5 by the Share Vendor and the Galaxy Warranties [ie the warranties, representations and undertakings given by Mr Kuthoor to Vagas Lane under the Principal Galaxy Agreement], and upon and subject to the terms and conditions of this Agreement, the Share Vendor shall sell and the Share Purchaser or its nominees shall purchase the Sale Shares [ie the shares in Paris Sky] free from all claims, charges, liens, encumbrances and options of any kind whatsoever but together with all rights attached, accrued or accruing thereto and together with all dividends and distributions declared made or paid or agreed to be made or paid thereon or in respect thereof on or after the date hereof.” [clause 2 of the Principal Paris Sky Agreement]

22.  The only liability and creditor of Galaxy expressly disclosed by Mr Kuthoor in the Agreements was the mortgage loan owing to Lei Shing Hong.

23.  After the completion of the sale and purchase, it transpired to Vagas Lane that there were a number of outstanding liabilities of Galaxy which were not disclosed under the Agreements:

(1) A claim by Tak Po Limited (“Tak Po”) to pay a total sum of HK$938,000 under two invoices dated 25 May 2011 and 24 June 2011 in respect of a quotation dated 22 September 2010 (“the Tak Po Quotation”), which became the subject matter of legal proceedings against Galaxy in DCCJ 3393/2011 (“the Tak Po Proceedings”).

(2) Further claims by Tak Po for a sum of HK$134,000 under the Tak Po Quotation and a sum of HK$24,633.33 being legal costs incurred by Tak Po in the Tak Po Proceedings;

(3) A claim by Wang & Lee Contracting Limited (“Wang & Lee”) to pay a total sum of HK$795,000 under three invoices dated 24 February 2011, 31 March 2011 and 31 March 2011 in respect of two quotations dated 20 October 2010 and 4 November 2010, which became the subject matter of legal proceedings against Galaxy in DCCJ 3394/2011 (“the Wang & Lee Proceedings”).

(4) A further claim by Wang & Lee for a sum of HK$19,096.67 being legal costs incurred by Wang & Lee in the Wang & Lee Proceedings.

(5) A claim by Teaman Design Limited (“Teaman”) to pay a total sum of HK$131,633 under three invoices dated 24 January 2011, 21 March 2011 and 23 March 2011 in respect of a sales confirmation dated 9 November 2010, a quotation dated 12 January 2011 and oral agreements made in early February 2011 (“the Teaman Claim”).

(6) Demands from the Rating and Valuation Department for, inter alia, HK$39,834.27 being the outstanding rates and HK$154,399.79 being the outstanding government rent totalling HK$194,234.06 in respect of the Property for the period from 23 December 2009 to 28 February 2011.

24.  Subsequently, Vagas Lane procured Galaxy to settle the Tak Po Proceedings, the Wang & Lee Proceedings and the Teaman Claim with part payment by way of monthly instalments:

(1) By a deed of settlement dated 16 November 2012, Galaxy settled the Tak Po Proceedings at the total sum of HK$375,200 payable by 18 monthly instalments upon the terms and conditions set out therein.

(2) By a deed of settlement dated 16 November 2012, Galaxy settled the Wang & Lee Proceedings at the total sum of HK$318,000 payable by 18 monthly instalments upon the terms and conditions set out therein.

(3) By a deed of settlement dated 4 December 2012, Galaxy settled the Teaman Claim at the total sum of HK$52,665.20 payable by 18 monthly instalments upon the terms and conditions set out therein.

25.  Vagas Lane also procured Galaxy to settle the outstanding rates and government rent in full in the total sum of HK$194,234.06.

26.  It is Vagas Lane’s case that, by reason of Galaxy’s outstanding liabilities prior to completion, Mr Kuthoor had breached the terms of the Agreement.  As a result, Vagas Lane suffered loss in the reduction of value of its shareholding in Galaxy and Paris Sky, equivalent to the sums paid to settle the outstanding liabilities, and thus claims for such loss against Mr Kuthoor.

27.  In his pleading, Mr Kuthoor raised the following defences to Vagas Lane’s claim and counterclaimed for certain monies paid/held by Galaxy:

(1) All quotations, invoices and other documents relating to the claims by Tak Po, Wang & Lee, Teaman and the Rating and Valuation Department were disclosed to Vagas Lane in about December 2010 for the purpose of Vagas Lane conducting due diligence in respect of Galaxy.

(2) Subsequently, by an oral agreement between Mr Kuthoor and Mr Sun (acting for and on behalf of Vagas Lane) in about January 2011, it was agreed that:

(a) Mr Kuthoor should be liable for and settle invoices already issued by Tak Po and/or Wang & Lee and/or Teaman and received by Mr Kuthoor on or before completion.

(b) Vagas Lane should be liable for and settle invoices issued by Tak Po and/or Wang & Lee and/or Teaman and received by Galaxy after completion.

(c) Upon completion, Vagas Lane should reimburse Kuthoor (i) water and electricity deposits in respect of the Property paid by Galaxy and (ii) money held in Galaxy’s bank account.

C3. HCA 1774 of 2011 — the $10 Million Claim Action

28.  In HCA 1774/2011, Mr Kuthoor and Ms Tsoi claim against Ms Luk and Mr Sun for the sum of HK$10 million pursuant to the 1^st and 2^nd Alleged Oral Agreements.  It is essentially a counterclaim based on Ms Tsoi’s defence in HCA 1070/2011.  The issues involved are therefore the same.  This action is referred to in this judgment as the “$10 Million Claim Action”.

C4. Trial of three actions together

29.  Pursuant to the Orders of Master H Au‑Yeung dated 22 July 2013, it was ordered, amongst other things, that:

(1) the $7 Million Claim Action, the Breach of Warranties Action and the $10 Million Claim Action be heard and together; and

(2) evidence adduced (including documents disclosed) in one of the three actions should also serve and be treated as evidence in the other actions.

C5. Bankruptcy of Mr Kuthoor

30.  On 26 March 2014, Mr Kuthoor was adjudged bankrupt in HCB 247/2014.

31.  Upon the making of a bankruptcy order, all property of the bankrupt vests in the Official Receiver (or any other person appointed as provisional trustee or trustee).  The property vesting in the Official Receiver includes the bankrupt’s right to sue in respect of causes of action as at the commencement of the bankruptcy.  See sections 2 (definition of “property”), 12, 30A, 43(1) and 58 of the Bankruptcy Ordinance (Cap 6); Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255 at §21 (Kwan JA).

32.  The effect of a bankruptcy order is that the bankrupt shall be divested of, and ceases to have any interest in, either his assets or his liabilities.  The bankrupt would have no standing to commence or proceed with any proceedings unless the Official Receiver agrees to assign the right of action to the bankrupt.

33.  By a letter dated 4 May 2015, the Official Receiver stated, amongst other things, that he would not adopt the actions in which Mr Kuthoor is involved (namely the Breach of Warranties Action and the HK$10 Million Claim Action), or assign Mr Kuthoor’s rights back to him.  Accordingly, by virtue of his bankruptcy, Mr Kuthoor no longer has the standing to pursue his counterclaim in the Breach of Warranties Action and his claim in the HK$10 Million Claim Action.

34.  By an order dated 6 May 2015, Master S Lo granted leave to Vagas Lane to proceed its claim against Mr Kuthoor in the Breach of Warranties Action.  Because Mr Kuthoor no longer has standing to defend the claim, Vagas Lane will succeed in the Breach of Warranties Action if it can prove its claim.

D. THE ISSUES FOR DETERMINATION

35.  In my view, there are the following principal issues in this trial for my determination:

(1) Whether Vagas Lane has proved its case against Mr Kuthoor in the Breach of Warranties Action (“Issue 1”).

(2) Whether the 1^st and 2^nd Alleged Oral Agreements exist (“Issue 2”).

(3) Whether FA Finance is entitled to any relief in the $7 Million Claim Action (“Issue 3”).

E. ISSUE 1 – WHETHER VAGAS LANE HAS PROVED ITS CASE AGAINST MR KUTHOOR IN THE BREACH OF WARRANTIES ACTION

36.  I am satisfied that the matters set out in §§21 to 25 above have been proved by Vagas Lane. 

37.  In the circumstances, I find that Mr Kuthoor was in breach of the relevant warranties and representations in the Agreements, and that Vagas Lane has suffered loss and damage as a result in the total amount of HK$940,099.26 (being HK$375,200 + HK$318,000 + HK$52,665.20 + HK$194,234.06).

38.  In its supplemental written closing submissions, Vagas Lane stated that it would not ask for pre‑judgment interest, and would only seek post‑judgment interest from the date of judgment until payment at judgment rate.

39.  In its written closing submissions, Vagas Lane initially sought a declaration of an indemnity against Mr Kuthoor in respect of all loss and damage that Vagas Lane is liable to suffer.  Subsequently, it was accepted on behalf of Vagas Lane that the court does not give a blanket indemnity, and the court was invited to give liberty to Vagas Lane to apply for directions for the disposal of the issue of indemnity pursuant to clause 5.5 of the Principal Galaxy Agreement and the Principal Paris Sky Agreement.

F. ISSUE 2 – WHETHER THE 1^ST AND 2^ND ALLEGED ORAL AGREEMENTS EXIST

40.  Whether or not the 1^st and 2^nd Alleged Oral Agreements exist ultimately depends on my assessment of the credibility of the parties’ witnesses.

F1. My approach in assessing credibility and finding facts

41.  In making my findings of fact in this case, I adopt the following general principles as to fact finding and assessment of credibility I set out in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8 April 2014) at §§77‑80:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce)…

78. In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5th May 2011) §39 (Chu J).

79. In determining a witness’s credibility, I have also attached importance to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my 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.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination…”

F2. The evidence of Ms Tsoi in summary

42.  Ms Tsoi’s evidence in support of the 1^st and 2^nd Alleged Oral Agreements can be summarised as follows:

(1) Through Mr Chui Sang Derek (“Mr Chui”), in early October 2010, Mr Kuthoor and Ms Tsoi met Mr Sun and Mr Kwok Cheuk Yuen Nickson (“Mr Kwok”) at the office of Mr Kwok.  At this meeting (“the First Meeting”), terms of the intended sale and purchase of the Property were discussed and it was agreed that the consideration would be HK$140 million, and the sale would be effected not by an outright assignment of the Property but by transfer of the entire issued share capital of Galaxy.

(2) Around two days after the First Meeting, Mr Chui contacted Ms Tsoi and suggested the consideration would comprise HK$100 million in cash and HK$40 million worth of shares in a listed company (“the Second Meeting”).  Ms Tsoi counter‑offered HK$120 million in cash and HK$20 million worth of shares, but such a counter‑offer was rejected by Mr Chui.  Mr Chui said that Mr Kuthoor and Ms Tsoi had to take up HK$40 million worth of shares in the listed company, but Mr Sun promised that he would issue one bonus share for every four allotted shares within one month after the completion of the sale and purchase.  This meant that Mr Kuthoor and Ms Tsoi would get an extra HK$10 million worth of shares in the listed company (namely the Bonus Shares).

(3) Mr Chui explained that since the intended purchase was a disclosable transaction, the Bonus Shares could not be stated in the sale and purchase agreements and would have to come from Mr Sun’s own pocket instead.  Mr Sun would in effect be reducing his own shareholding in the listed company and transferring his own HK$10 million worth of shares to Mr Kuthoor and Ms Tsoi.  If the issue of Bonus Shares were stated in the agreements, the other shareholders or investors of the listed company would query why the Bonus Shares were issued.

(4) Ms Tsoi found out later in October 2010 that the listed company was FA Holdings.

(5) Ms Tsoi met Ms Luk and Mr Sun about two days before the opening ceremony of the Property in April 2011. They proposed that in lieu of transferring the Bonus Shares as agreed, they would pay HK$10 million to Mr Kuthoor and Ms Tsoi.  When Ms Tsoi told Mr Kuthoor about this proposal, he also agreed and authorised Ms Tsoi to receive the HK$10 million on behalf of both of them.

(6) In late May 2011, just before Ms Tsoi flew to Singapore to join Ms Luk and Mr Sun on a business trip, Ms Tsoi asked Mr Sun when Mr Kuthoor and she would receive the HK$10 million. Mr Sun told her that she should receive it before she went on the trip. But she did not receive the sum before her departure.  When she was in Singapore, she repeated the demand for the sum.  Mr Sun promised to pay her HK$7 million in partial payment of the HK$10 million by 27 May 2011.  He said Ms Luk had signed and placed blank cheques in her office in the Property and that they would instruct Mr Choi to deposit HK$7 million into her personal bank account.

(7) Ms Tsoi returned to Hong Kong on 30 May 2011 and found that HK$7 million had not yet been deposited into her account.  She checked with Mr Choi and requested him to do so.  Mr Choi confirmed to her that Ms Luk had instructed him to deposit HK$7 million into Ms Tsoi’s account.  The Cheque was deposited in Ms Tsoi’s account on 30 May 2011.

(8) Ms Tsoi denies having applied or agreed to any personal loan from FA Finance.  When requesting Mr Choi to deposit HK$7 million into her bank account, she did not represent to him that she had completed the loan application procedure.

F3. The evidence of Ms Luk and Mr Sun in summary

43.  Mr Luk’s and Mr Sun’s evidence in relation to the 1^st and 2^nd Alleged Oral Agreements can be summarised as follows:

(1) There was never any agreement or promise or proposal between the parties at any time in respect of issuance of Bonus Shares within one month after completion.

(2) There was never any agreement or promise or proposal at any time that Vagas Lane or Ms Luk or Mr Sun or FA Finance would pay HK$10,000,000 to Mr Kuthoor or Ms Tsoi in lieu of the issuance of the Bonus Shares.

(3) Mr Sun denies having offered to give Bonus Shares to Ms Tsoi out of his own pocket or at all.  Mr Sun was not authorised by Ms Luk to offer any Bonus Shares to Ms Tsoi and Mr Sun did not hold shares in FA Holdings.

F4. My assessment of the evidence

F4a. Ms Tsoi’s account of the 1^st Alleged Oral Agreement

44.  There are a number of unsatisfactory features in Ms Tsoi’s case concerning the 1^st Alleged Oral Agreement.

45.  First, Ms Tsoi’s pleaded case is not fully supported by her own evidence.

(1) Ms Tsoi’s pleaded case is that:

(a) the 1^st Alleged Oral Agreement was made between Ms Luk and Mr Sun on the one hand and Mr Kuthoor and Ms Tsoi on the other in October 2010; and

(b) Ms Luk and Mr Sun made the promise to issue the Bonus Shares to Mr Kuthoor and Ms Tsoi through their (Ms Luk’s and Mr Sun’s) agent, Mr Chui. 

These matters are clear from the pleadings filed on behalf of Ms Tsoi in the HK$7 Million Claim Action and the HK$10 Million Claim Action.  It is right to point out that Ms Tsoi expressly repeated her pleaded case in relation to the provenance of the 1^st Alleged Oral Agreement by obtaining leave to file an amended pleading on the first day of the trial.

(2) According to her first witness statement (§§11 and 12), Mr Chui in the Second Meeting said to Ms Tsoi that Mr Sun promised that he (Mr Sun) would issue the Bonus Shares to Mr Kuthoor and Ms Tsoi and such shares would come from Mr Sun’s own pocket.  The same was repeated in her supplemental witness statement (§4). Nothing was said in her witness statements that Ms Luk also made a similar promise.

(3) In her cross‑examination, Ms Tsoi gave additional evidence about the Second Meeting.  She said the only persons who attended such a meeting were Mr Chui and herself.  Nonetheless, her oral testimony in cross‑examination was that it was Mr Sun who made the promise to issue the Bonus Shares.  This was repeated by Ms Tsoi at various times in her cross‑examination.

(4) Accordingly, contrary to Ms Tsoi’s pleadings, there is no evidence that Ms Luk ever promised to issue Bonus Shares to Mr Kuthoor and Ms Tsoi.

46.  Second, because Mr Chui did not come to court to give evidence, there is in my view insufficient cogent evidence for Ms Tsoi to establish the existence of the 1^st Alleged Oral Agreement:

(1) It has always been Ms Tsoi’s case that Mr Sun did not directly make the promise of issuing the Bonus Shares to Mr Kuthoor and herself; her case is that the promise came from Mr Sun through Mr Chui.

(2) Therefore, as far as establishing the 1^st Alleged Oral Agreement is concerned, Mr Chui is an important witness.  This is particularly so when Mr Sun denies having made any promise regarding the Bonus Shares to anyone.

(3) Mr Chui prepared a witness statement on behalf of Ms Tsoi in these proceedings.  The statement was dated and filed on 16 January 2014.  It was anticipated by all the parties that he would turn up at the trial to give evidence for Ms Tsoi.  On Day 3 of the trial, when Mr Chui was expected to go into the witness box, Ms Tsoi’s counsel (Mr Raymond Fong) informed the court that Mr Chui would not be available that afternoon and that he would attend court on the following day.  Nonetheless, at the start of Day 4, Mr Fong said that Mr Chui would not be coming to give evidence.

(3) In these circumstances, there is no cogent evidence that Mr Sun made any promise to issue the Bonus Shares to Mr Kuthoor and Ms Tsoi.  It is unnecessary for me to resort to drawing any adverse inference against Ms Tsoi in respect of Mr Chui’s absence at the trial.

47.  Third, in the light of Ms Tsoi’s background, I consider it inherently improbable that she would enter into an oral agreement of such a nature as the 1^st Alleged Oral Agreement which was not evidenced in any written form:

(1) In her witness statement, Ms Tsoi described herself as a business woman.  She told the court that she has had about 20 years of experience doing business in property dealing and trading.

(2) Ms Tsoi only met Mr Sun for the first time in October 2010 at the First Meeting.  That was when the 1^st Alleged Oral Agreement was allegedly made.  I find it difficult to believe that an experienced business woman such as Ms Tsoi at that time would be so ready to enter into an oral agreement involving the transfer of HK$10 million worth of Bonus Shares with third parties with whom she was unfamiliar and had no previous dealings. 

(3) Even though Ms Tsoi said in cross-examination that HK$10 million is not a “huge figure” to her, I do not believe that she would have simply dispensed with the need to record the alleged agreement in writing.  There was no reason (and none was given in evidence) for Ms Tsoi to place any trust in Mr Sun in October 2010 to honour the alleged promise.

(4) When asked in cross‑examination why she did not ask Mr Sun to reduce the alleged promise into writing, Ms Tsoi said that it did not cross her mind and added that she did not have any chance to see Mr Sun and did not have his email address.  Ms Tsoi subsequently accepted that she did have Mr Sun’s business card in which his email address could be found.  If Ms Tsoi wanted to contact Mr Sun, I find it difficult to believe that she was unable to do so.

F4b. Shareholders’ Chart

48.  Ms Tsoi relied on a document prepared by Mr Kwok entitled “First Asia Holdings Limited: Shareholders Structure as at May 10, 2011” to support her case.  This document was referred to by the parties as the “Shareholders’ Chart” and was emailed by Mr Kwok to Ms Tsoi on 14 May 2011. The following information appears in the Shareholders’ Chart:

Shareholders	Beneficial Owner	No. of Shares Held	%
Huge Team Investments Limited	Alan/Kimmy	13,000,000	22.49%
First Asia Strategy Limited	Alan/Kimmy	15,435,897	26.70%
Other related companies of Alan/Kimmy	Alan/Kimmy	8,992,000	15.56%
		37,427,897	64.75%
Sunford Limited	Shanty/Fanny	7,712,000	13.34%
Golden Tree Limited	Shanty/Fanny	2,571,000	4.45%
Commission shares (HK$10m / 7.8 / 0.5)	Shanty/Fanny	2,564,103	4.44%
		12,847,103	22.23%
Shares issued under private placement on Mar 22, 2011	Third party	1,444,516	2.50%
Shares issued under private placement on Apr 15, 2011	Third party	1,052,431	1.82%
Shares issued under private placement on Apr 21, 2011	Third party	2,203,010	3.81%
Shares issued under private placement on Apr 29, 2011	Third party	1,454,938	2.52%
Other public shareholders	Third party	1,372,134	2.37%
		7,527,029	13.02%
Total no. of shares issued as at May 10, 2011		57,802,029	100%

49.  Mr Kwok was a witness at the trial and gave evidence for Ms Luk and Mr Sun:

(1) He described himself as an acquaintance of Ms Luk and provided general corporate and financial advice to Ms Luk and her companies as an external consultant.  He also acted as the bridge between Ms Luk and the US lawyers and share transfer agent for the acquisition of shares in FA Holdings by Ms Luk and her companies.  Mr Kwok denied that he was an auditor of FA Holdings or any member of the First Asia Group, and I accept his evidence in this regard.

(2) Mr Kwok’s evidence on the provenance of the Shareholders’ Chart was as follows.  On 14 May 2011, whilst Mr Kwok visited FA Holdings, Ms Tsoi approached him in the conference room with an earlier shareholders’ chart in her hand.  Ms Tsoi requested him to add one row of item entitled “commission shares” to an earlier chart.  She told Mr Kwok that she was negotiating with Ms Luk on certain transactions and might be able to get shares in FA Holdings in the amount of HK$10 million valued at US$0.50 per share.  She indicated that she wanted to know what would be her total percentage shareholding (together with Mr Kuthoor’s shareholding) if such commission shares were included and a rough figure of asset per share.  Mr Kwok did not tell Ms Luk about this and proceeded to prepare the chart using the previous version.  He added one row for the “commission shares” under the companies held by Mr Kuthoor and Ms Tsoi, and deducted the same amount of shares from First Asia Strategy Ltd, being one of Ms Luk’s companies.  Mr Kwok then emailed the Shareholders’ Chart and another schedule showing a rough calculation of asset value per share to Ms Tsoi.

50.  In her evidence, Ms Tsoi said that “commission shares” in the Shareholders’ Chart were the Bonus Shares that Mr Sun promised to issue to Mr Kuthoor and herself.  She denied having approached Mr Kwok at any time to request him to add the “commission shares” to the shareholders’ chart.  In cross‑examination, Ms Tsoi said that the Shareholders’ Chart was sent to her because she asked Mr Kwok about the physical data of FA Holdings.

51.  I prefer Mr Kwok’s evidence to that of Ms Tsoi in relation to the provenance of the Shareholders’ Chart:

(1) On Ms Tsoi’s case, the Shareholders Chart was emailed to Ms Tsoi because she asked Mr Kwok about the physical data of FA Holdings.  I find this unlikely to have happened.  It is difficult to know exactly what is meant by the “physical data” of a company.  I therefore very doubt that Mr Kwok would have sent the Shareholders’ Chart (which contained very specific information about various companies) to Ms Tsoi if the request was merely for “physical data” of FA Holdings.

(2) Further, it is clear that the relevant words on the Shareholders’ Chart were “Commission shares”, and not “Bonus Shares”.  If Mr Kwok knew about the existence of the Bonus Shares, there is no reason why that term was not used in the Shareholders’ Chart.

(3) Finally, Mr Kwok has no direct interest in the outcome of these proceedings.  I can see no reason for him to lie about the provenance of the Shareholders’ Chart.  Indeed, none was suggested to him by Mr Fong in his cross‑examination.

I therefore find what Mr Kwok said to be the provenance of the Shareholders’ Chart as facts.

F4c. Evidence from Mr Wong Ming Hung Andrew

52.  Mr Wong Ming Hung Andrew (“Mr Wong”) gave evidence at the trial on behalf of Ms Tsoi.  Mr Wong is a partner at Gallant YT Ho & Co, the solicitors who acted on behalf of Mr Kuthoor and Ms Tsoi in the Galaxy transaction.

53.  In his evidence, Mr Wong said that he understood the parties did not mention Bonus Shares in the Principal or Supplemental Agreements because they wanted to keep the matter private and confidential between themselves and not to disclose it to other investors to avoid complication.

54.  I do not question Mr Wong’s motive for coming to give evidence on behalf of his client, Ms Tsoi. However, I am unable to attach much weight to Mr Wong’s evidence concerning the Bonus Shares:

(1) First, as he acknowledged in cross-examination, everything that he understood about the Bonus Shares came from his two clients, Mr Kuthoor and Ms Tsoi.  Mr Wong has no direct knowledge concerning the Bonus Shares.

(2) Further, in cross-examination, Mr Wong stated that his understanding was that both Ms Luk and Mr Sun would give the Bonus Shares to Mr Kuthoor and Ms Tsoi.  This is inconsistent with Mr Tsoi’s own evidence that the Bonus Shares would only come from Mr Sun.

55.  Accordingly, I cannot regard what Mr Wong said concerning the Bonus Shares as cogent corroborative evidence to support Ms Tsoi’s case.

F4d. Ms Tsoi’s account of the 2^nd Alleged Oral Agreement

56.  Similarly, there are a number of unsatisfactory features in Ms Tsoi’s case concerning the 2^nd Alleged Oral Agreement.

57.  First, there is an internal inconsistency in Ms Tsoi’s pleaded case in relation to the 2^nd Alleged Oral Agreement:

(1) In her Amended Defence in the HK$7 Million Claim Action and the Statement of Claim in the HK$10 Million Claim Action, she stated that Ms Luk and Mr Sun in mid‑May 2011 undertook to Mr Kuthoor and her that instead of issuing the Bonus Shares, the latter would be paid HK$10 million.   

(2) In the $10 Million Claim Action, Ms Luk and Mr Sun requested for further and better particulars of, amongst other things, the date when they were alleged to have orally made the undertaking to Mr Kuthoor and Ms Tsoi about the HK$10 million payment.  In the answer, Ms Tsoi said that the undertaking was made “About 2 days before the opening ceremony of the Property”.

(3) Reading the above pleas together, Ms Tsoi’s case is that the alleged undertaking was made by Ms Luk and Mr Sun to Mr Kuthoor and herself in mid‑May 2011.

(4) That was well and fine until Ms Tsoi went into the witness box on Day 2 of the trial.  In her examination‑in‑chief, she corrected a number of errors in her witness statements and affirmations previously filed in these proceedings.  One of the errors she corrected was the date when she met Ms Luk and Mr Sun before the opening ceremony of the Property.  The date stated in her witness statement and affirmation was “May 2011” but Ms Tsoi changed it to “April 2011”.  Her evidence became as follows:

“I met with Mr Sun and Ms Luk about two days before the opening of the Property in April 2011. They told me that Mr Chui had asked to have a share in the Bonus Shares but they would not accede to his request and would honour their promise to Mr Kuthoor and me. They proposed, however, that instead of issuing the Bonus Shares as promised, they would pay HK$10,000,000 to Mr Kuthoor and me. I agreed to their proposal.”

(5) As a result of Ms Tsoi’s change of evidence, there is an inconsistency between her pleaded case and her evidence in relation to the date as to when the 2^nd Alleged Oral Agreement was allegedly created.

58.  Second, I find it hard to understand the logic as to why Ms Luk would enter into the 2^nd Alleged Oral Agreement.  On Ms Tsoi’s case, the HK$10 million worth of Bonus Shares were to come from Mr Sun from his own pocket, and Ms Luk was not involved in it. If that were the case, I do not see why Ms Luk would make any undertaking in April 2011 to pay $10 million to Mr Kuthoor and Ms Tsoi which was said to be something in lieu of the giving of Bonus Shares.  When asked about this in cross-examination, Ms Tsoi said that Ms Luk became liable for the HK$10 million payment because she (Ms Tsoi) chased for it and that Ms Luk’s signature had to be obtained. I found this to be a non‑sensical answer. 

59.  Third, on Ms Tsoi’s case, the 2^nd Alleged Oral Agreement was allegedly made in April 2011.  If this were correct, one would expect Ms Tsoi to pursue for the payment of HK$10 million cash, and not the issue of any of the Bonus Shares, after the making of that alleged agreement.  However, in an email dated 1 June 2011 to Mr Kwok (copied to Ms Luk and Mr Sun), Ms Tsoi was asking for the release of “the rest of the 2,564,103 nos. of shares”.  The fact that she was asking for the rest of the Bonus Shares is inconsistent with her case that the parties had entered into the 2^nd Alleged Oral Agreement in April 2011.

60.  Fourth, I again consider it inherently improbable that Ms Tsoi would enter into an oral agreement of such a nature as the 2^nd Alleged Oral Agreement which was not evidenced in any written form:

(1) I repeat what I said in Section F4a above in relation to the 1^st Alleged Oral Agreement on this point.   

(2) Moreover, Ms Tsoi accepted that her relationship with Ms Luk and Mr Sun was not very good and was only “so so” even after the completion of the Galaxy transaction in February 2011.  In these circumstances, I find it all the more difficult to understand why Ms Tsoi did not ask Ms Luk and/or Mr Sun to record their alleged promise concerning the payment of HK$10 million in writing.

61.  Fifth, if the 2^nd Alleged Oral Agreement indeed existed between the parties, I would have expected to see demands made by Mr Kuthoor and/or Ms Tsoi for the remaining HK$3 million after Ms Tsoi received the HK$7 million at the end of May 2011.  There is no contemporaneous documentation showing that Ms Tsoi ever demanded for the payment of HK$3 million.  When asked about this in cross‑examination, Ms Tsoi said that there were discussions about it, but gave no particulars of them.  No such discussions were previously mentioned in Ms Tsoi’s witness statements or affirmations filed in these proceedings.  I do not believe there was any occasion when Ms Tsoi demanded for the payment of HK$3 million.

F5. My findings

62.  It is necessary for Ms Tsoi to prove on a balance of probabilities that the 1^st and 2^nd Alleged Oral Agreements exist. 

63.  For the reasons given above, I find that Ms Tsoi has failed to discharge this burden.  I disbelieve her evidence concerning the 1^st and 2^nd Alleged Oral Agreements.  I find as a fact that:

(1) no promise or undertaking was made by Ms Luk or Mr Sun at any time in respect of issuance of the Bonus Shares to Mr Kuthoor and/or Ms Tsoi;

(2) no promise or undertaking was made by Ms Luk or Mr Sun at any time that a sum of HK$10,000,000 would be paid to Mr Kuthoor and/or Ms Tsoi in lieu of the issuance of the Bonus Shares; and

(3) the 1^st and 2^nd Alleged Oral Agreements do not exist.

G. ISSUE 3 — WHETHER FA FINANCE IS ENTITLED TO ANY RELIEF IN THE $7 MILLION CLAIM ACTION

64.  Whether or not the FA Finance is entitled to any relief against Ms Tsoi depends on the nature of the HK$7 million paid by FA Finance to Ms Tsoi on 30 May 2011, which is also a question of fact.  Once the factual basis of the payment of the HK$7 million is ascertained, it is then necessary to consider whether there is any legal basis for the recovery of the sum.

G1. Ms Tsoi’s evidence in summary

65.  A summary of Ms Tsoi’s evidence in relation to the circumstances under which the HK$7 million was paid to her can be found in Section F2 above.

G2. FA Finance’s evidence in summary

66.  At the trial, Ms Luk, Mr Sun and Mr Lo Kui Hang (“Mr Lo”) gave evidence to support FA Finance’s case against Ms Tsoi.  Their evidence can be summarised as follows:

(1) On or about 9 May 2011, Ms Tsoi and Mr Sun went into Ms Luk’s office and Ms Tsoi expressed the wish to apply for an interest free loan of HK$10 million for a term of one year from FA Finance.  Ms Tsoi explained that she urgently needed the money by the end of May 2011 and was experiencing serious cash flow problem.

(2) As Ms Tsoi was Ms Luk’s business partner and Ms Luk was still doing business dealings with her, Ms Luk said to Ms Tsoi in the presence of Mr Sun that she (Ms Luk) would need time to consider whether it was financially viable for FA Finance to accede to the request.

(3) On or about 18 May 2011, Ms Luk told Ms Tsoi in the presence of Mr Sun that FA Finance could only lend her a three months’ interest free loan of HK$7 million commencing from 30 May 2011 and repayable in a lump sum on 29 August 2011 and the default interest rate would be 4.5% per month.  Moreover, as FA Finance was a money lender, the condition for advancing the loan to Ms Tsoi was that Ms Tsoi would be required to sign a loan agreement. Ms Tsoi agreed to the same.

(4) On or about 20 May 2011, Ms Luk signed a cheque of HK$7 million on behalf of FA Finance (namely the Cheque) and passed it to Mr Choi pending preparation of the draft loan agreement for execution by FA Finance and Ms Tsoi.

(5) On the same day, Mr Choi sent a draft loan agreement to Ms Tsoi by email at fanny@firstasiaholdings.com.

(6) On 22 May 2011, whilst Mr Sun and Ms Luk were in Singapore on a business trip, Ms Tsoi telephoned Ms Luk saying that she was fine with the draft loan agreement except that the correct date for commencement of the loan should be 30 May 2011 instead of 20 May 2011 as stated in the draft.  Afterwards, Ms Luk telephoned Mr Choi to make the amendment and Mr Choi placed the revised loan agreement on Ms Tsoi’s desk.

(7) Between 24 and 29 May 2011, whilst they were on a trip in India, Ms Tsoi also said to Ms Luk that she would sign the loan agreement upon their return to Hong Kong on 30 May 2011.

(8) Upon our arrival to Hong Kong on 30 May 2011, Ms Tsoi said to Ms Luk that she (Ms Tsoi) would return to the office first to sign the loan agreement and then to have the Cheque deposited into her bank account.  Ms Tsoi was picked up by Mr Choi and Mr Lo at the airport who then drove Ms Tsoi back to the office in Tsuen Wan.

(9) After returning to the office, Ms Tsoi told Mr Choi in the presence of Mr Lo that she had already completed all the loan application procedures and documents, and instructed Mr Choi to deposit the Cheque into her bank account.  Mr Choi and Mr Lo deposited the Cheque into Ms Tsoi’s bank account at about 3:00 pm on 30 May 2011.

(10) When Ms Luk returned to her office on 31 May 2011, she realised the loan agreement had not been signed by Ms Tsoi but the Cheque had been deposited into Ms Tsoi’s bank account.  She immediately telephoned Ms Tsoi requesting her to come to the office to execute the loan agreement or to repay the loan immediately. Ms Tsoi refused to do either.

(11) On 2 June 2011, FA Finance through its former solicitors (Messrs Ribeiro Hui (“RH”)) issued a letter to Ms Tsoi requesting her to sign the loan agreement within three days.

(12) On 22 June 2011, RH on behalf of FA Finance issued another letter to Ms Tsoi requesting her to repay the loan immediately.

G3. My assessment of the evidence

67.  It is necessary for me to resolve the factual disputes between the parties as to the true nature of the HK$7 million paid by FA Finance to Ms Tsoi.  FA Finance’s case is that it was a loan and Ms Tsoi’s case is that it was partial payment of a sum of HK$10 million pursuant to the 2^nd Alleged Oral Agreement.

68.  Since I have found as a fact the 2^nd Alleged Oral Agreement does not exist, it follows that Ms Tsoi’s case concerning the nature of the HK$7 million fails.

69.  In any event, I find that FA Finance has proved on a balance of probabilities that the HK$7 million was a loan. 

70.  First, there are a number of contemporaneous documents to support the existence of the HK$7 million loan from FA Finance to Ms Tsoi, namely (1) the email from Mr Choi to Ms Tsoi dated 20 May 2011 and the draft loan agreement attached to that email, (2) the draft loan agreement dated 30 May 2011, (3) the letter dated 2 June 2011 from RH to Ms Tsoi and (4) the letter dated 22 June 2011 from RH to Ms Tsoi.  Even though Ms Tsoi denied in evidence that she received the documents in (1) and (2), I have no basis to think (and none was suggested to Ms Luk in cross‑examination) that those documents were not authentic or prepared contemporaneously. 

71.  Second, I find it strange that Ms Tsoi did not dispute the existence of the loan of HK$7 million upon the receipt of the two demand letters from RH.  Ms Tsoi acknowledged in her witness statement that she did receive RH’s letter of 2 June 2011, but said nothing about what she did in relation to the letter.  If Ms Tsoi did not ask for a loan of HK$7 million and the payment to her was in partial payment pursuant to the 2^nd Alleged Oral Agreement, it would be natural to expect Ms Tsoi, at the very least, to reply to the letters to deny the existence of the loan and set out her case.  There is no evidence that she did the same.

72.  Third, Ms Tsoi gave unsatisfactory evidence to support her case concerning the HK$7 million: 

(1) In her first witness statement (§33), she said that on 31 May 2011, Ms Luk and Mr Choi called her and demanded that she should sign the loan agreement or repay the sum of HK$7 million at once, and she (Ms Tsoi) refused to comply with their demands.  When being cross‑examined on this paragraph of her witness statement, Ms Tsoi first agreed that it was Ms Luk and Mr Choi who asked her to sign the loan agreement or repay HK$7 million.  Shortly afterwards, she said that it was Mr Choi (but not Ms Luk) who called her and stated that her witness statement and pleading about Ms Luk making the call were wrong. No satisfactory explanation was given by Ms Tsoi about how the “mistakes” came about.

(2) In her witness statement (§28), Ms Tsoi said that she demanded Mr Sun for the HK$10 million in Singapore pursuant to the 2^nd Alleged Oral Agreement and Mr Sun promised to her HK$7 million in partial payment.  Ms Tsoi added in cross‑examination that only HK$7 million was promised because Mr Sun said he did not have enough money.  This is quite different from the crux of what Ms Tsoi said in an affirmation previously filed in these proceedings, where Ms Tsoi stated on oath, amongst other things, that (a) she bought a house in May 2011, (b) she told Mr Sun that she needed HK$7 million to complete the purchase, and (c) Mr Sun promised to pay her HK$7 million.

73.  As far as FA Finance’s case that the loan of HK$7 million was obtained by Ms Tsoi’s fraudulent misrepresentation is concerned, I do not consider the evidence adduced by FA Finance to be sufficient to establish a case of fraud against Ms Tsoi:

(1) FA Finance’s pleaded case of fraud is that Ms Tsoi represented to Mr Choi that all documents and procedures in respect of the loan application had been completed with the management of FA Finance and Mr Choi was thus authorised to release the Cheque to Ms Tsoi.  The representation is said to be false in that (a) the loan agreement was not signed by Ms Tsoi, (b) the procedures for the loan application had not been completed, and (c) FA Finance had not authorised any of its staff to release the Cheque to Ms Tsoi pending execution of the loan agreement

(2) In assessing the evidence to support FA Finance’s fraud case Tsoi, I have borne in mind that the allegation is very serious, and that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be: see Re H (Minors) [1996] AC 563 at 586D‑587F (Lord Nicholls) and ADS v Brothers (2000) 3 HKCFAR 70 at 77J‑78G (Lord Hoffmann NPJ).

(3) Mr Choi was the person to whom the alleged fraudulent misrepresentation was made.  Although a witness statement was prepared and filed, Mr Choi did not attend the trial to give evidence.  I therefore place no weight on what is stated in Mr Choi’s witness statement.

(4) Mr Lo gave evidence at the trial for FA Finance.  In his witness statement, Mr Lo stated that he heard Ms Tsoi saying to Mr Choi that she had completed all the loan application procedures and documents.  When asked in cross‑examination what exact words were used by Ms Tsoi, Mr Lo’s oral testimony was that Ms Tsoi said that she had already signed all the documents and that she told Mr Choi to deposit the cheque by 4pm.  Mr Lo also accepted in cross‑examination that he did not understand what Ms Tsoi was saying at the time when he heard the conversation between Ms Tsoi and Mr Choi.

(5) It seems to me that Mr Lo’s evidence is not sufficient to establish FA Finance’s pleaded case of fraudulent misrepresentation against Ms Tsoi.  In particular, Mr Lo did not give evidence to say that she heard Ms Tsoi saying to Mr Choi that (a) she had already signed the loan agreement or (b) Mr Choi was authorised by FA Finance to release the Cheque.  Further, Mr Lo in cross‑examination gave a slightly different version of the event and did not mention about Ms Tsoi’s alleged acknowledgement of having completed all the loan application procedures.

(6) For these reasons, I do not find FA Finance’s case of fraud against Ms Tsoi proved.  It is unnecessary for me to resort to drawing any adverse inference against FA Finance in respect of Mr Choi’s absence at the trial.

G4. My findings

74.  I find the following as facts:

(1) On or about 9 May 2011, Ms Tsoi and Mr Sun went into Ms Luk’s office and Ms Tsoi expressed the wish to apply for an interest free loan of HK$10 million for a term of one year from FA Finance.

(2) On or about 18 May 2011, Ms Luk told Ms Tsoi in the presence of Mr Sun that FA Finance could only lend her a three months’ interest free loan of HK$7 million commencing from 30 May 2011 and repayable in a lump sum on 29 August 2011 and the default interest rate would be 4.5% per month. 

(3) Ms Tsoi orally agreed to the terms of the loan and that she would sign a written loan agreement in respect of the loan. 

(4) On 30 May 2011, FA Finance advanced the loan of HK$7 million by depositing the Cheque into Ms Tsoi’s bank account thinking that the loan agreement had already been signed, namely that there would be a valid and binding loan agreement between FA Finance and Ms Tsoi.  However, no loan agreement was ever signed by Ms Tsoi.

G5. Legal basis for recovery of HK$7 Million

75.  FA Finance pleaded the following alternative causes of action to seek the recovery of HK$7 million from Ms Tsoi:

(1) fraudulent misrepresentation;

(2) money had and received; and

(3) conversion of the Cheque.

76.  Mr Patrick Chong (appearing with Mr Justin Lam), counsel for FA Finance, confirmed in his oral closing address that FA Finance would not be relying on conversion in these proceedings.

G5a. Fraudulent misrepresentation

77.  As mentioned above, FA Finance’s case of fraud is not made out.  Its case of fraudulent misrepresentation therefore fails.  It follows that FA Finance cannot seek damages for misrepresentation, or a constructive trust on the basis that Ms Tsoi obtained any property by fraud.

G5b. Unjust enrichment

78.  Money had and received is an old common law form of action and is now regarded as a common law restitutionary claim based on unjust enrichment: see Westdeutsche Bank v Islington LBC [1996] AC 669 at 683B (Lord Goff) & 710E‑G (Lord Browne‑Wilkinson); Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594 at §54 (Litton PJ).

79.  Similarly, a cause of action for money had and received where consideration has totally failed is now generally regarded as a species of claim for restitution based upon principles of unjust enrichment: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §66 (Ribeiro PJ).

80.  In cases of unjust enrichment, the courts adopt the following analytical framework to determine the validity of the claim:

(1) Was the defendant enriched?

(2) Was the enrichment at the plaintiff’s expense?

(3) Was the enrichment unjust?

(4) Are any of the defences applicable?

See Shanghai Tongji (above) at §67 (Ribeiro PJ) and Yukio Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558 at §26 (Ribeiro PJ).

81.  Was Ms Tsoi enriched?  There is no question that she was enriched by HK$7 million as a result of the deposit of the Cheque on 30 May 2011.

82.  Was Ms Tsoi’s enrichment at FA Finance’s expense? 

(1) In his oral closing address, Mr Fong submitted that this question should be answered in the negative because (a) two sums totalling HK$7 million were paid into FA Finance’s bank account on 23 May 2011 by Ms Luk and Mr Sun, (b) Ms Luk and Mr Sun retained the beneficial interest of the HK$7 million after the same was paid into FA Finance’s bank account, (c) FA Finance held the HK$7 million on trust for Ms Luk and Mr Sun upon receipt of the same on 23 May 2011, and (d) FA Finance was nothing more than a “conduit” for the HK$7 million. 

(2) I reject these submissions. There is nothing to suggest (and none was suggested by Mr Fong) that FA Finance did not become the absolute owner of the HK$7 million when the same was deposited into its account on 23 May 2011.  There is therefore no foundation for the assertions that Ms Luk and Mr Sun retained the beneficial interest of the HK$7 million after the same was paid into FA Finance’s bank account, or that FA Finance held the HK$7 million on trust for Ms Luk and Mr Sun upon receipt of the same on 23 May 2011. It is right to point out that these assertions were neither pleaded by Ms Tsoi nor canvassed in Ms Luk’s or Mr Sun’s cross‑examination.

(3) In my view, Ms Tsoi received HK$7 million from FA Finance and it is clear that her enrichment was at FA Finance’s expense.

83.  Was the enrichment unjust?

(1) In its written closing submissions, FA Finance advanced the following bases as the “unjust factors”: (a) lack of authority or consent, (b) total failure of consideration and (c) mistake.

(2) Lack of authority or consent:

(a) FA Finance merely cited Goff & Jones: The Law of Unjust Enrichment (8^th edn, 2011) §§8‑05 & 8‑07 to support “lack of authority or consent” as a basis for restitution in its written closing submissions.  No elaboration was made by Mr Chong in his oral address.  Mr Fong also made no submissions in his oral closing address on this ground.

(b) At §§8‑01 and 8‑02 of Goff & Jones, the learned editors stated the following by way of introduction:

“It often happens that a defendant, D, obtains an enrichment by immediate transfer from a claimant, C, circumstances where C did not consent to the enrichment. It is also common for a defendant, D, to obtain an enrichment from a claimant, C, more remotely, as a result of the actions of a third party, X, which were neither authorised nor consented to by C. Cases of this kind span a large spectrum. They include cases of simple theft, where D steals directly from C, or where X steals from C and then transfers the stolen asset to D. They also include a different category of cases, exemplified by misapplications of trust assets by trustees, where X holds or controls assets subject to duties and powers to deal with the assets for the benefit of another, and where D is enriched as a result of X’s unauthorised dealings with the assets.

In our view, a claim in unjust enrichment may be available in all of these cases, which can be explained in terms of two distinct, though overlapping, grounds for recovery. Where D is directly enriched at C’s expense without the intermediation of any third party – as where D simply steals from C – C’s ‘lack of consent’ is a sufficient description of the operative ground.  However, in more complex cases where D is immediately enriched by X, but more remotely by C, the position may be different.  Where X holds assets subject to duties and powers to deal with them for C’s benefit, and acts within his authority, C will have no remedy. But where X acts outside his authority, his ‘want of authority’ will itself constitute a sufficient ground for recovery by C.”

(c) The learned editors of Goff & Jones go on (at §8‑03) to acknowledge that (i) some academics (such as the late Prof Peter Birks, and Prof Andrew Burrows) describe the ground of restitution in the “lack of consent” and “want of authority” cases as “ignorance” (in the sense that the plaintiff has no knowledge of the conduct which enriched the defendant at the plaintiff’s expense), while (ii) other academics (such as Prof William Swadling and Prof Graham Virgo) have argued that many of such cases do not lie within the law of unjust enrichment at all.

(d) None of these grounds (lack of consent, want of authority and ignorance) has yet been explicitly recognised by the courts as an unjust factor: A Burrows: A Restatement of the English Law of Unjust Enrichment (2012), at p 93.

(e) In these circumstances, and particularly in the absence of any submissions from the parties, it does not seem appropriate for me as a first instance deputy judge to recognise any of these factors as a ground of restitution in law.

(3) Total failure of consideration:

(a) “Consideration” in the context of a claim in unjust enrichment is different from that in the law of contract.  “Consideration” for the purposes of the law of unjust enrichment does not mean the quid pro quo for there to be a binding contract as it is used in the law of contract.  In the law of unjust enrichment, “consideration” refers to the condition which formed the basis of the plaintiff’s transfer to the defendant of the benefit in question.  In Shanghai Tongji (above) §79, Ribeiro PJ referred to it as “the anticipated performance for which the money was paid, or the ‘basis or purpose’ of the payment”. 

(b) Where total failure of consideration is relied upon as the “unjust factor”, it is crucial to correctly identify and characterise the transaction providing the basis for the defendant’s enrichment, and it is only then can one identify the relevant anticipated performance and ascertain whether it has totally failed: see Shanghai Tongji (above) §80 (Ribeiro PJ).

(c) In the law of unjust enrichment, the usual consideration that fails which gives rise to restitution is the promised counter-performance.  If money was paid to secure performance and if performance fails, the inducement which brought about the payment is not fulfilled: see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48 (Viscount Simon LC); Shanghai Tongji (above) §79 (Ribeiro PJ).

(d) In his oral closing address, Mr Chong submitted that the “consideration” that failed in the present case was the signing of the loan agreement.

(e) It is clear from the evidence that FA Finance would only be prepared to advance HK$7 million to Ms Tsoi if the loan agreement was signed.  It may therefore be said that the condition for the payment of the HK$7 million by FA Finance to Ms Tsoi was the signing of the loan agreement.  As the loan agreement was not eventually signed, the condition for the payment was not satisfied.  In these circumstances, there was in my view a total failure of consideration.

(4) Mistake:

(a) The defendant’s enrichment is unjust if it is caused by a mistake of fact or law made by the plaintiff. 

(b) It is prima facie unjust for a recipient of money to retain the payment when, if the payer had known the true state of affairs, he would not have paid: see Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 at 399C‑D (Lord Hoffmann).

(c) In his oral closing address, Mr Chong submitted that FA Finance paid the HK$7 million to Ms Tsoi under the mistaken belief that the loan agreement had already been signed.  He acknowledged that the word “mistake” was not used in FA Finance’s pleading.  Nonetheless, he submitted that the material facts giving rise to the payment of HK$7 million have been sufficiently pleaded and pointed out that no pleading point has been taken against him by Ms Tsoi.

(d) On the basis of the facts that I have found, it seems to me that the state of affairs at the time of payment was not what FA Finance thought.  When the Cheque was deposited into Ms Tsoi’s bank account, FA Finance thought (wrongly) that there was a valid and binding loan agreement between itself (FA Finance) and Ms Tsoi.  I consider that this material fact has been sufficiently pleaded in FA Finance’s Amended Statement of Claim.  Accordingly, I believe FA Finance is entitled to rely on mistake as a further unjust factor to support its restitutionary claim.

84.  Are any of the defences applicable?  Ms Tsoi has pleaded estoppel as a defence to FA Finance’s claim.  However, this defence was formulated on the basis of there being a promise given by Ms Luk and Mr Sun under the 1^st and 2^nd Alleged Oral Agreements.  In the light of my findings that the 1^st and 2^nd Alleged Oral Agreements do not exist, Ms Tsoi’s defence of estoppel must necessarily fail.

85.  For the above reasons, FA Finance succeeds in its claim in unjust enrichment against Ms Tsoi in relation to the HK$7 million.

H. CONCLUSION

86.  In the light of my conclusions above:

(1) I give judgment in favour of FA Finance in HCA 1070/2011;

(2) I give judgment in favour of Vagas Lane and dismiss Mr Kuthoor’s counterclaim in HCA 1589/2011; and

(3) I dismiss the claim of Mr Kuthoor and Ms Tsoi in HCA 1774/2011.

87.  I also make the following orders:

(A) HCA 1070/2011:

(1) Ms Tsoi to pay to FA Finance the sum of HK$7 million together with interest thereon at prime rate (as quoted by HSBC) plus 1% per annum from 30 May 2011 until the date of this judgment and thereafter at judgment rate until full payment.

(2) An order nisi that the costs of FA Finance in this action (including any reserved costs) be paid by Ms Tsoi, to be taxed if not agreed.

(2) HCA 1589/2011:

(1) Mr Kuthoor to pay to Vagas Lane the sum of HK$940,099.26 by way of damages together with interest thereon from the date of this judgment at judgment rate until full payment.

(2) Liberty to Vagas Lane to apply for directions for the disposal of the issue on indemnity pursuant to clause 5.5 of the Principal Galaxy Agreement and the Principal Paris Sky Agreement.

(3) Mr Kuthoor’s counterclaim against Vagas Lane be dismissed.

(4) An order nisi that the costs of Vagas Lane in this action (including any reserved costs) be paid by Mr Kuthoor, to be taxed if not agreed. 

(3) HCA 1774/2011:

(1) All the claims by Mr Kuthoor and Ms Tsoi against Ms Luk and Mr Sun be dismissed.

(2) An order nisi that the costs of Ms Luk and Mr Sun in this action (including any reserved costs) be paid by Mr Kuthoor and Ms Tsoi, to be taxed if not agreed.

(3) All of the above costs orders nisi shall be made absolute 14 days from the date of this judgment.