NGAI KEUNG v. MING YIU HENG

HCA 1584/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1584 OF 2010

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is an action for breach of contract in which the plaintiff (“Plaintiff”) claims the outstanding balance of the purchase price in the sum of $400,000 for 50 shares in Top Green Environment Technology Company Limited (“Top Green”) sold to the defendant (“Defendant”) under an equity transfer agreement dated 10 January 2009 (“ETA”).

In addition, the Plaintiff claims as related relief the return of a sum of RMB43,000 (which Mr Cheung, counsel for the Plaintiff, agrees should be amended to RMB25,000 and $16,000) given to the Defendant and a declaration that a cheque in the amount of $350,000 issued to the Defendant as well as a Chinese agreement (“Settlement Agreement”) entered into between the Plaintiff and the Defendant to settle their dispute over the ETA are void by reason of duress applied by the Defendant on the Plaintiff.  The Defendant denies liability for the balance of the purchase price under the ETA and counterclaims for its rescission and damages by reason of three misrepresentations made by the Plaintiff: (i) that Group Sense (International) Limited had passed a resolution to inject $20 million into Top Green as working capital (“Resolution Representation”); (ii) that the 50 shares in Top Green to be sold to the Defendant should be worth $1 million (“Share Value Representation”); and (iii) that Top Green will employ the Defendant at a monthly salary    of no less than $10,000 (“Employment Representation”).

2.  The parties have no dispute that they entered into the ETA, pursuant to which the Defendant paid the Plaintiff two instalments amounting to $600,000, leaving a balance of $400,000 unpaid.  The Plaintiff seeks to claim the outstanding balance and to avoid the Settlement Agreement on the ground of duress so as to recover the said sums of RMB25,000 and $16,000.  The Defendant has no dispute that he received those two sums pursuant to the Settlement Agreement. 

3.  The Defendant’s position is that the Settlement Agreement was repudiated by the Plaintiff instituting the present action.  The Defendant accepted the repudiation and raised a counterclaim by way of defence seeking the equitable remedy of rescission of the ETA for misrepresentation so as to recover the sum of $600,000 paid and to avoid the liability to pay the outstanding balance of the purchase price.  The Defendant will give credit to the two said sums received if he is successful in his counterclaim or to return the said sums if he is not.  In view of the above, the Plaintiff’s claims in respect of the Settlement Agreement are no longer live issues.  The Plaintiff’s allegation of duress is not relevant except as to credibility of the witnesses.

4.  The disputes in this case are all factual. Ultimately, they boil down to two issues: first, whether the Plaintiff had made the three representations to the Defendant, ie (i) the Resolution Representation; (ii) the Share Value Representation; and (iii) the Employment Representation; and second, whether the Defendant entered into the   ETA in reliance of any of the representations.  There is no dispute that the representations, if they were made, were false.  Whether the Settlement Agreement was entered into by the Plaintiff as result of duress is a side issue for the purpose of testing credibility of the witnesses.  These disputes will have to be resolved depending on my finding of credibility of the witnesses.

The applicable legal principles

5.  The legal principles involved in this case are: rescission, misrepresentation and duress.  Except for the question whether rescission is open to a representee who has the opportunity to discover the falsity of the representation, counsel have no dispute about these trite principles.   For convenience, these general principles are set out hereunder.

6.  In general, the equitable remedy of rescission is available to a representee who can show that a false representation was made to him by or on behalf of the other party to the contract; that either the representation was made fraudulently or it was a representation of fact; and that the representation acted as an inducement to his decision to enter into the contract: see Cartwright, Misrepresentation, Mistake and Non-Disclosure, Third Edition, at paragraph 4-21.  Of particular relevance in this case, as the facts reveal, is that the representee must show that he has relied on the representation in the meaning that the court is satisfied is false: Misrepresentation, Mistake and Non-Disclosure, paragraph 5-24.

7.  A misrepresentation must be a false statement of fact, past or present, as distinct from a statement of opinion, or of intention, or of law.  A mere statement of opinion which proves to have been unfounded or a simple statement of intention which is not put into effect, as a general rule, cannot be regarded as a representation of fact, unless such opinion or intention is not honesty held: Misrepresentation, Mistake and Non-Disclosure, paragraphs 6-004 to 6-008.

8.  A contract which has been entered into as the result of duress may be avoided by the party who was threatened.  Threat to the victim’s person as well as wrongful threats to his property may amount to duress: Misrepresentation, Mistake and Non-Disclosure, paragraph 7-001.

9.  Counsel are in dispute as to whether the fact that a representee could have discovered the falsity of the representation had he exercised reasonable care is a defence to an action for rescission.  Miss Cheung, counsel for the Defendant, submits it is not.  Mr Cheung submits it is.  Mr Cheung relies on Misrepresentation, Mistake and    Non-Disclosure, paragraph 6-039:

“Representee could have discovered truth: rescission. If the representee did not know that the representation was false, it is no defence to an action for rescission that the representee might have discovered its falsity by the exercise of reasonable care (quoting a line of authorities including Redgrave v Hurd). It has been argued that the rule that a misrepresentee’s failure to take advantage of an opportunity to discover the truth is no bar to rescission may require re-consideration in the light of indications in cases of claims for damages for negligent misstatement to the effect that buyers of expensive or commercial properties would be expected to have their own survey done, and thus would fail in a claim for negligent misrepresentation against a surveyor employed by the lender (quoting Smith v Eric S Bush [1990] 1 AC 831, 854, 872); it is suggested that the rule should be limited to cases in which it was reasonable not to take the opportunity (quoting Treitel, The Law of Contract (11^th ed., 2003) p340). It is not clear, however, that the same approach should apply as between contracting parties when the misrepresentee is seeking to rescind, as is taken when a party claims damages for a negligent misstatement by a person with whom he is not in a contractual relationship. When the misstatement leads to a contract with the misrepresentor, there is at least the possibility that the misrepresentor will have benefited from his misstatement, for example by obtaining a better price for the property he is selling. The fact that he was innocent, and the other party careless of his own interests, does not necessarily justify allowing the misrepresentor to retain the advantage gained.”

I am unable to read from the above passage that Cartwright is suggesting a representee’s failure to avail himself of the opportunity to discover the falsity of the representation is a bar to rescission.  The learned author first referred to the established rule of the House of Lords in Redgrave v Hurd (1881) 20 Ch D 1 that failure to take the opportunity to discover the falsity is not a bar to the remedy.  He then referred to the contrary argument advanced in Smith v Eric S Bush [1990] 1 AC 831, [1989] 2 WLR 790, and the suggestion in Treitel that the established rule should be limited to cases in which it was reasonable for the representee not to take the opportunity.  The learned author did not refer to any dicta from decided cases and gave no conclusion as to what the law is.

10.  Mr Cheung then quoted the following passage from Treitel,  The Law of Contract (Tenth Edition, 1999) 313 mentioned by Cartwright:

“(3) Opportunity to find out the truth

A person may be entitled to relief even though he had, but did not take, the opportunity to test the accuracy of the representation (quoting a line of authorities including Redgrave v Hurd). This rule is most frequently applied to cases of fraud, but Smith v Eric S Bush shows that it can also apply where the misrepresentation was negligent. The claimants in that case had bought a house with the aid of a mortgage, relying on a valuation which had been negligently conducted by a surveyor engaged by the lender. Their claim against the surveyor succeeded in spite of the fact that they might have discovered the truth if they had conducted their own independent survey; for it was neither reasonable to expect them to take this step, nor likely that they would do so, since the house in question was one of modest value. But the House of Lords indicated that the position might be different on the purchase of commercial or industrial premises, or even of residential property of high value. The principle appears to be that failure to make use of an opportunity to discover the truth may defeat a claim for negligent misrepresentation where, but only where, it is reasonable to expect the representee to make use of the opportunity. An express warning to the representee not to rely on the representation could also negative liability for negligent misrepresentation, just as it has been held to prevent a misrepresentation from being included in the resulting contract as one of its terms.

In Redgrave v Hurd, it was held that an opportunity to discover the truth was no bar to relief even where the misrepresentation was innocent. In that case, a person was induced to buy a solicitor’s practice and house by an innocent misrepresentation as to the value of the practice. He was allowed to rescind even though he had the opportunity of examining the accounts of the practice and so discovering the truth. It should, however, be noted that, when Redgrave v Hurd was decided, all misrepresentations which were not fraudulent were described as “innocent.” Now, the law distinguishes between negligent and wholly innocent misrepresentations; and it further distinguishes between cases in which it was, and those in which it was not, reasonable for the representee to make use of an opportunity to discover the truth. Where it is reasonable to expect the representee to make use of such an opportunity, and he fails to do so, the reasoning of Smith v Eric S Bush indicates that a claim based on negligent misrepresentation will fail; and the position should, a fortiori, be the same where the misrepresentation is wholly innocent. To this extent, it is submitted that the rule in Redgrave v Hurd no longer applies. Where it is not reasonable to expect the representee to make use of the opportunity to discover the truth, and he fails to do so, the actual decision in Smith v Eric S Bush shows that a claim based on negligent misrepresentation will nevertheless succeed; but it is less clear whether the same result should follow where the misrepresentation was wholly innocent, so that both parties were equally innocent. Redgrave v Hurd stands as an authority for the proposition that, in the case last put, failure to make use of the opportunity to discover the truth is no bar to relief. It can be supported on the ground that there is actual, and reasonable, reliance on the misrepresentation in such a case.”

11.  Mr Cheung does not quote from Smith v Eric S Bush.  It is     a long case involving two appeals on basically similar facts.  The facts were succinctly summarised by Treitel.  The headnote reads:

“Held, dismissing the defendants’ appeal in the first case and allowing the plaintiffs’ appeal in the second case, that a valuer instructed by a prospective mortgagee to carry out a valuation of a modest house for the purpose of deciding whether or not to grant a mortgage on it to the prospective mortgagor owed a duty of care to the mortgagor to exercise reasonable skill and care in carrying out the valuation, if he was aware that the mortgagor would probably purchase the house in reliance on the valuation without an independent survey, unless the valuer had made a disclaimer of liability to the mortgagor; that a disclaimer of liability by or on behalf of a valuer was a notice which purported to exclude liability for negligence within the meaning of the Unfair Contract Terms Act 1977 and would be ineffective by virtue of section 2(2) unless it satisfied the requirement of reasonableness provided by section 11(3) of the Act; and that, since the valuer was a professional man, whether he was acting as an independent contractor or as an employee of the mortgagee, whose services were paid for by the mortgagor, who might or might not be supplied with a copy of the valuation report, it would not be fair and reasonable to allow the valuer to rely on such a disclaimer to exclude his liability to the mortgagor for the accuracy of the valuation.”

12.  Smith v Eric S Bush is a case founded on the tort of negligence in which a repesentee purchaser of a property sued a surveyor employed by the vendor in negligence. The issues of that case as identified by Lord Templeman at [1989] 2 WLR 790 at 793 were:

“My Lords, these appeals involve consideration of three questions. The first question is whether a valuer instructed by a building society or other mortgagee to value a house, knowing that his valuation will probably be relied upon by the prospective purchaser and mortgagor of the house, owes to the purchaser in tort a duty to exercise reasonable skill and care in carrying out the valuation unless the valuer disclaims liability. If so, the second question is whether a disclaimer of liability by or on behalf of the valuer is a notice which purports to exclude liability for negligence within the Unfair Contract Terms Act 1977 and is therefore ineffective unless it satisfies the requirement of reasonableness. If so, the third question is whether, in the absence of special circumstances, it is fair and reasonable for the valuer to rely on the notice excluding liability.”

13.  That case was about breach of duty of care in negligence by a third party to a contract and not about breach of duty or misrepresentation by parties to a contract inter se.  It was in the context of a claim in negligence that the House of Lords commented about the need to take into consideration the reasonableness of the representee not to take the opportunity to discover the falsity of the representation in a claim for rescission.  After finding against the representor, Lord Griffiths said at 811:

“It must, however, be remembered that this is a decision in respect of a dwelling house of modest value in which it is widely recognised by surveyors that purchasers are in fact relying on their care and skill. It will obviously be of general application in broadly similar circumstances. But I expressly reserve my position in respect of valuations of quite different types of property for mortgage purposes, such as industrial property, large blocks of flats or very expensive houses. In such cases it may well be that the general expectation of the behaviour of the purchaser is quite different. With very large sums of money at stake prudence would seem to demand that the purchaser obtain his own structural survey to guide him in his purchase and, in such circumstances with very much larger sums of money at stake, it may be reasonable for the surveyors valuing on behalf of those who are providing the finance either to exclude or limit their liability to the purchaser.”

14.  In a case of negligence, the size of the transaction must be one of the circumstances which affects the extent of the reliance placed by the representee on the representation by a third party with whom he has no contractual relationship.  Where it is reasonable for the representee to seek the opinion of his own expert and he fails to do so, it reflects that he does not genuinely rely on the representation made by the third party or that he substantially contributed to his loss by reason of his own negligence.

15.  The above dicta are clearly obiter insofar as the duty of care in negligence is concerned.  But, in my view, they are not even applicable to the contractual relation between parties to a contract inter se.  Contributory negligence is a defence to an action in negligence.  But it is difficult to see how it could be raised as a defence to an action for rescission of a contract due to misrepresentation which vitiated the consent needed to make a binding agreement.  If in the course of negotiating a contract, one party made a representation to the other which induced that other party to enter into a contract, it certainly lies ill in the representator’s mouth to say that the representee should have verified the truth or otherwise of what he was told.  To import a duty on the representee to verify the representation as Treitel suggested would be to impose on the representee a due diligence duty which he has not contracted to undertake and to relieve the representor of the consequence of his own wrong while allowing him to keep the benefit of the contract.  This is contrary to good commercial practice and commercial morality.   It is also contrary to public policy.  With respect to the learned author of The Law of Contract, I think he was reading far too much into Lord Griffiths’ dicta and misapplied them to misrepresentation made by one party which induced the other party to enter into the contract.  The suggestion advanced by Treitel is contrary to the well established principle in Redgrave v Hurd which has stood unchallenged for over  a hundred years.  There is no reason to restrict the law of rescission on the way as suggested by Treitel.  I think, the learned author was only taking the opportunity of a dicotomy in the law between innocent and negligent misrepresentation to test the waters with his proposition which is not supported by authorities or legal principles.  I consider I am bound by Redgrave v Hurd.  I conclude that that a misrepresentee might have discovered the falsity of the misrepresentation is no defence to a claim for rescission.

16.  I now turn to the facts of the case.

Dramatis Personae

17.  Group Sense (International) Limited(權智(國際)有很公司) is a public listed company in Hong Kong (“Group Sense International”) whose main business is the manufacture of electronic dictionary popularly known as “Inst-Dict”(快譯通).

18.  Group Sense (S.E.A.) Limited is a company incorporated in the British Virgin Islands (“Group Sense SEA”).  It is a subsidiary of Group Sense International.  There is no evidence that it has a Chinese name incorporating the words “權智”. It holds 550 shares, equivalent to 55% of the issued shares in Top Green. 

19.  Greentech Environment Limited (“Greentech”) is a company of which the Plaintiff is a director and shareholder.  It was the former employer of Chen Cho-Hsien (“Chen”).  It was engaged in environmental protection technology business. 

20.  Top Green Environment Technology Company Limited is a company incorporated in Hong Kong with an authorised share capital of $10,000 divided into 10,000 shares of $1 each and an issued share capital of $1,000 represented by 1,000 issued shares.  Prior to the ETA, Group Sense SEA, the Plaintiff and Chen respectively held 550, 200 and 250 shares.  It had an office space in Hong Kong Science Park.

21.  Dongjiang Environment Limited (“Dongjiang”) is a company engaged in environmental protection technology business. It was the former employer of the Defendant.

22.  INB Holdings Ltd (“INB”) is a company established by the Defendant in September 2008.

23.  Tam Wai Tong Thomas (“Tam”) is an executive director of Group Sense (International) Limited and director of Top Green.   He is the brother of Tam Wai Ho Samson.

24.  Tam Wai Ho Samson is the brother of Tam and chairman of Group Sense International.

25.  Chen Cho-Hsien is a Taiwanese technologist. While he was employed by Greentech, he developed a technology of extracting copper from industrial effluent from factories manufacturing electronic components.  He held 250 shares in Top Green.

26.  Ngai Keung (the Plaintiff) is a shareholder of Greentech and Top Green.   Initially, he held 200 shares in Top Green, equivalent to 20% of its issued share capital.  He sold 50 shares to the Defendant   under the ETA.

27.  Ming Yiu Heng (the Defendant) was born and educated in the United Kingdom.  He obtained a bachelor degree in material engineering and then a master degree in material science from the University of London in 2002.  He completed a one year diploma course in law.   He speaks and writes English.  He also speaks Cantonese but does not read or write Chinese.  He resided and worked in the United Kingdom until 2006 when he came to Hong Kong.  In December 2006, he joined the Dongjiang as an assistant general manager.  He looked to the Plaintiff as his uncle because he considered the Plaintiff cared for him and introduced him to important business people.

28.  Ming Lai Siu Fun (“Defendant’s mother”) is the Defendant’s mother.  She is a businesswoman.

29.  Lin is a business friend of the Defendant’s mother.

Credibility of witnesses

30.  The witnesses’ credibility is of crucial importance in this case as the parties’ case stands or fall on my finding of their credibility.   I have to exercise extreme caution.  I bear in mind that the test of credibility is inherent probability.  I test the witness’ evidence against contemporaneous documents which do not lie.

31.  The Plaintiff is a seasoned businessman.  He is a director and shareholder of Greentech and Top Green and is involved in other business operations in the People’s Republic of China (“PRC”).      He commanded the respect of the Defendant who regarded him as an uncle.  His witness statement was brief and lacking in details.  So was his evidence in court.  He was evasive in the witness box.  His evidence under cross-examination was inconsistent with contemporaneous documents.  He was unable to explain the Defendant’s various e-mails demanding refund of the sum of $600,000.  For reasons as I shall give    in my analysis of the evidence, I do not find him credible.  He is selective in telling the truth.  His evidence about what happened in the Shenzhen Bao’an Airport (“Airport”), in particular, betrayed him.

32.  The Defendant received good education in the United Kingdom.  He has a few years working experience prior to meeting the Plaintiff.  Compared with the Plaintiff, he is young in life and experience, rather immature and naïve.  He relied on his parents to provide him the funds to purchase the shares in Top Green.  He relied much on his mother’s assistance in meeting with Tam to discover the truth and to negotiate with the Plaintiff for the Settlement Agreement.  He was straight forward in the witness box.  He gave evidence in a consistent and logical manner.  His evidence is supported by contemporaneous documents such as his e-mails, his statement given to the Shatin Police Station, the ETA and Settlement Agreement.  He was careless and gullible in his business dealing, but nevertheless an honest young man.  For reasons as I shall give in the analysis of the evidence, I find the Defendant credible.

33.  The Defendant’s mother is a seasoned businesswoman.     She has much business experience in the PRC.  She is very business-like.  Her answers under cross-examination are spontaneous, solid and coherent.  She was firm under cross-examination.  She was able to explain the evidence she gave in a logical and impressive manner.  She was an impress witness.  I accept her evidence.

34.  Both counsel rely on the dicta of Le Pichon JA in Li Sau Keung v Maxcredit Engineering Ltd & Anor [2004] 1 HKC 434 at 443 and commented on the failure of their opponent in calling material witnesses.  Miss Cheung criticized the Plaintiff for not calling Tam     who was pivotal to the Defendant’s discovery that Group Sense International had not passed any resolution to inject $20 million into   Top Green.  That issue is not in dispute.  It would be futile for any party to have called Tam to give evidence.  Moreover, Tam was not privy to any of the discussions leading to the ETA.

35.  Mr Cheung asks me to draw adverse inference against the Defendant’s credibility for his failure to call Lin and Chen to give evidence.  Chen is a Taiwanese resident in Taiwan.  He has given a witness statement; but he has nothing much to offer on the issues that I have to determine.  Though his evidence corroborates that of the Defendant’s in some respects, he was not privy to any of the discussions between the Plaintiff and Defendant leading to the ETA.  Lin is resident in the PRC.  He has not given a witness statement. He assisted the Defendant in confronting the Plaintiff and witnessed the Settlement Agreement.  However, it was decided that the Settlement Agreement would not be in issue and the incident in the Airport insignificant.    Being a resident of the PRC, Lin may have difficulties coming to Hong Kong to testify.  Both Chen and Lin would have little to offer to  the Defendant’s case.  It would be inconvenient and costly to bring them to Hong Kong to give evidence.  I would not draw any adverse inference against the Defendant for not calling these witnesses.

The background

36.  The following background is either common ground or based on incontrovertible evidence.   I shall deal with disputed facts separately.

37.  After the Defendant came to Hong Kong in 2006, he was employed by Dongjiang as an assistant general manager.  In March 2008, he came to know the Plaintiff when the latter came to Dongjiang to market the copper extraction technology and to discuss establishing a joint venture with Dongjiang. He was delegated to be the liaison officer to deal with Greentech.  The Plaintiff introduced him to Chen who demonstrated the technology to him.  During the course of the negotiation of the joint venture, the Plaintiff also introduced Tam to him and     the senior executives of Dongjian as “Mr Tam of權智 and/or 快譯通”. The Defendant wrote a favourable report on the technology and    believed it was profitable.  However, no business was struck between Dongjiang and Greentech.

38.  The Defendant left Dongjiang in September 2008 to start   his business with INB.  In October 2008, the Plaintiff approached   the Defendant to revive his proposed joint venture with Dongjiang.      The Defendant told the Plaintiff that he had left Dongjiang. 

39.  Shortly after that meeting, the Plaintiff approached the Defendant again and arranged a meeting at Kowloon Tong Club.  What was discussed at the meeting is in dispute.  But it is not disputed that the Plaintiff offered to sell to the Defendant 5% of his shareholding in Top Green for $1 million and the Defendant said he would consider  the offer.  How the purchase price was arrived at is also in dispute.

40.  There were further follow up meetings.  Eventually, on 16 January 2009, the Plaintiff and Defendant entered into the ETA.     The ETA is a very short English document drafted by the Defendant.      It contained four sections.  Section 1 identified the shares in Top Green.  Section 2 provided that the Plaintiff shall transfer 5% of the total issued shares of and in Top Green to the Defendant at a consideration of $1 million to be paid by four instalments.  The first and second instalments of $300,000 each were to be paid on 16 January and 16 March 2009.   The third and fourth instalments of $200,000 each were to be paid on    16 July and 16 October 2009.  Section 3 provided that the governing law shall be Hong Kong law.  Section 4 provided that the language of the ETA shall be English.  The first and second instalments were paid     upon signing the ETA and on 24 March 2009.  The payments were made by cheques issued by the Defendant’s mother.  The third and fourth instalments were never paid.

41.  On 20 January 2009, the Defendant, Chen and the Plaintiff attended the office of Group Sense SEA and/or Group Sense International in Hong Kong Science Park and signed a cooperation agreement together with Group Sense SEA relating to the operation of Top Green (“Cooperation Agreement”).  It was a two and half page document in Chinese prepared by the legal secretary, presumably of Group Sense International.  It was mainly about financing the operation of Top Green.  Clause 2 provided that all four parties shall contribute to the working capital or issued share capital of Top Green in accordance with the ratio of their shareholding in the company, if necessary. It further provided that Group Sense SEA will assist the Plaintiff and Chen in providing the above finance on certain terms.  Such assistance was not given to the Defendant.  Clause 3 provided that the Defendant shall advance $25,000 to Top Green as shareholder’s loan.  It further provided that all four parties shall advance loans to Top Green in accordance with the ratio of their shareholding in the company and that the Defendant shall make  loan by way of cash.

42.  Since signing the ETA, the Defendant was involved in the business of Green Top, albeit on a part time basis.  However, he was not paid any salary.  He did not pay the third and fourth instalments either. 

43.  On 18 November 2009, the Defendant called for a shareholders meeting at the office of Group Sense International or Group Sense SEA or Top Green in Hong Kong Science Park to discuss about Group Sense International’s resolution to inject $20 million into Top Green.  The Plaintiff did not attend the meeting on the excuse that he would be out of Hong Kong.  At that meeting, the Defendant found out that Group Sense International was not the majority shareholder of Top Green and that it was its subsidiary Group Sense SEA which was   the majority shareholder.  Tam also told the Defendant that Group Sense International had never passed any resolution to inject $20 million into Top Green. 

44.  On 26 March 2010, the Defendant and his mother had a meeting with Tam at the office Group Sense International.  They were given a copy of the balance sheet of Top Green showing that the Defendant had advanced $25,000 to Top Green and the company had a total net negative asset value of $1,529,341.

45.  During the four months in between those two meetings with Tam, the Defendant demanded the Plaintiff to refund the first and second instalments paid and said he would transfer the shares in Top Green   back to the Plaintiff.  The Plaintiff refused but offered other alternative compensation such as investments in other projects.  The meeting with the Plaintiff on 8 March 2010 was tape recorded.

46.  In September 2010, the Defendant and his mother reported the incident to the Shatin Police Station.  At the suggestion of the police officer, they telephoned the Plaintiff from the police station and the Plaintiff agreed to settle their dispute without resorting to the police. However, the Plaintiff did not honour his promise.  Subsequently,   the Defendant made a formal report at the Shatin Police Station.

47.  On 11 October 2010, by coincidence, the Defendant and    his mother saw the Plaintiff in the departure hall of the Airport. They intercepted the Plaintiff with the help of Lin.  They had an  argument and were taken by the airport security officer to a room in a police sub-station.  After a long negotiation, they reached the Settlement Agreement in which the Plaintiff agreed to compensate the Defendant    in the sum of $400,000 to be paid by instalments.  Pursuant to the Settlement Agreement, the Plaintiff paid the Defendant RMB25,000 and $16,000 that night.  However, a few days later, the Plaintiff commenced the present action to sue for the balance of the purchase price of the shares and to seek to avoid the Settlement Agreement on the ground of duress.

Resolution Representation

48.  The Defendant’s case is that the representation was made by the Plaintiff during the meeting at the Kowloon Tong Club.  The Plaintiff denied.  To put the evidence in its proper context, I shall first turn to the Plaintiff’s meeting with the Defendant and the senior executives of Dongjiang in March 2008 when the Plaintiff went there to market   the copper extraction technology.  It is common ground that during that meeting, the Plaintiff introduced Tam as “Mr Tam of權智 and/or 快譯通”.  The Plaintiff did not allude to the full name of 權智but admitted that he associated it with快譯通as Inst-Dict is more widely known.      By that description, the Plaintiff intended to clothe Tam as the authorized representative of Group Sense International, which is the manufacturer of Inst-Dict. That was so understood by the Defendant who even believed Tam to be the chairman of Group Sense International. 

49.  According to the Defendant, during the meeting at Kowloon Tong Club, the Plaintiff told him that the copper extraction technology had been assigned to Top Green whose shareholders were 權智, Chen and the Plaintiff and that 權智was the majority shareholder.  This evidence was not disputed by the Plaintiff.  The Plaintiff admitted under cross-examination that every time he mentioned Tam he associated him with  權智, the manufacturer of 快譯通, as it was easier to express that way.   He also admitted that he never mentioned the name, Group Sense SEA.  As Inst-Dict is the widely known flag product of Group Sense International, the Plaintiff must be taken to be representing that  Group Sense International was the majority shareholder of Top Green.  He cannot argue in that context that 權智could mean Group Sense SEA.  Group Sense SEA is a company incorporated in the British Virgin Islands.  It is unlikely to have a Chinese name.  In any event, it was not his evidence that Group Sense SEA has a Chinese name containing the words “權智”. 

50.  Mr Cheung tries to argue that the Defendant knew Group Sense SEA was the majority shareholder by referring to the Cooperation Agreement which was entered into by the Plaintiff, Defendant, Chen and Group Sense SEA shortly after the execution of the ETA.  This argument is futile because it was the Plaintiff’s own evidence that he told the Defendant that 權智was the majority shareholder of Top Green.  Furthermore, the Defendant explained that at the time he had no idea    the true name of Group Sense International and, based on his trust in    the Plaintiff, assumed he was dealing with Group Sense International,   the public listed company and manufactory of Inst-Dict.  He said he    was careless.  He said it was only until the meeting with Tam on 18 November 2009 that he realised that Group Sense SEA was the majority shareholder.  I accept his explanation.  If he was mistaken, he could not have realised the difference between the two entities.     After all their names are similar.  I find that the Plaintiff told the Defendant that Group Sense International was the majority shareholder of Top Green.

51.  The Defendant said that during that conversation, the Plaintiff further told him that Tam was very interested in developing the technology through Top Green and that權智had already passed a resolution to inject $20 million into Top Green as working capital.      This part of the conversation is in serious dispute.

52.  According to the Defendant, he and the Plaintiff had further follow up meetings in which the Plaintiff emphasised on the profitability of Top Green in the light of the capital injection and financial backing of a publicly listed company, which the Defendant understood to mean Group Sense International.  On one of the meetings, the Plaintiff indicated that he was eager to have the Defendant join Top Green because of his educational background and expertise in the environment protection field and promised that he could secure employment for the Defendant in Top Green at a monthly salary of between $10,000 to $20,000.

53.  The Plaintiff denied all that conversation had taken place.  His evidence is that the Defendant was eager to join the joint venture   and entered into the ETA.  He gave no particulars how that came about. He said that Top Green had been suffering loss.  He said it was only until 5 May 2010 when it was suggested by a shareholder, he did not mention who, either to close down the company or that the shareholders to contribute more capital that the Defendant demanded rescinding the ETA, objected to contributing more capital and suggested winding up Top Green.  The Plaintiff said he had all along been chasing the Defendant for the two outstanding instalments of the purchase price for the 50 shares but the Defendant said he had no money.  When the parties’ case is tested against contemporaneous documents, it is obvious that the Plaintiff’s case is not to be believed and the Defendant’s evidence credible.

54.  The Plaintiff’s evidence that the Resolution Representation was a fabrication by the Defendant made since 5 May 2010 does not come up to scrutiny.  According to the Defendant, since joining and working in Top Green he never received any salary.  He chased the Plaintiff, but the Plaintiff just ignored him.  He discussed with Chen and was told by Chen that the Plaintiff had made similar promise to him which had not been honoured.  He began to feel something wrong and hence did not pay the third and fourth instalments.  He called for a shareholders meeting on 18 November 2009.   This is evidenced by his   e-mail of the same date addressed to the Plaintiff, Tam and Chen.   His proposed agenda including discussing details of the shareholders of Top Green and its directors and about the “Alleged Group Sense resolution for investment of capital in relation to current project”.  By that resolution, the Defendant must have meant the resolution by Group Sense International to inject $20 million into Top Green which was allegedly represented to him by the Plaintiff. The Plaintiff did not attend the meeting saying that he was out of Hong Kong. It was at this meeting, that the Defendant found out that Group Sense International was not the majority shareholder and had not passed any resolution to inject $20 million into Top Green.  This e-mail is consistent with the Defendant’s evidence that the Plaintiff had represented to him about the resolution made by Group Sense International to inject $20 million into Top Green.  The e-mail also rebuts the Plaintiff’s evidence that the Defendant   had been quiet about everything and made no complaint about misrepresentation until when he was called upon to contribute more capital on 5 May 2010, six months later.

55.  Since 18 November 2009, there was a chain of e-mail by   the Defendant repeating the same matters.  On 12 January 2010, the Defendant wrote to the Plaintiff:

“Dear Joe:

Following our meeting last Tuesday (12^th January 2010), I am grateful that you are not the kind of person that will trick me and agree that you will aim to pay me back in 2 months time.

I have therefore provided attached a ‘equity retransfer and refund agreement’ following our meeting. I will transfer all the 5% equity I currently own in Top Green back to you and request you to also stick to your words to refund back the HKD600000 that I paid you for the equities.

As mentioned previously, I was willing to pay HKD1 Million because you mentioned Thomas Tam will invest HKD20 Million in the copper powder project and also he will employ us (both me and you) in order to manage the project.

After my last meeting with Thomas (Shareholder meeting), this was not the case. Thomas never invested HKD20 Million into the Top Green Company for the project and never employed both us into Top Green.

I therefore feel unfair, the same as yourself, that Thomas did not do what he promised to do. My HKD1 Million investment therefore does not make any sense anymore.”

This e-mail repeated the Defendant’s complaint of the Resolution Representation and Employment Representation and referred to an agreement reached or promise made by the Plaintiff on 12 January 2010 to pay the Defendant back the first and second instalments.  The alleged agreement or promise may be taken as an implied admission that     the representations had been made.  This e-mail is consistent with the Plaintiff’s case.   There was no response from the Plaintiff.

56.  Despite the Plaintiff’s evidence that he had been chasing    the Defendant for the two outstanding instalments, he could only produce one written document in support.  That was his e-mail in response to the Defendant’s e-mails dated 6 and 27 May 2010 repeating his demand for the return of the first and second instalments.  The Plaintiff said that he did not chase the Defendant because at the time they were working under a friendly atmosphere.  I do not find that credible.

57.  Mr Cheung makes a number of points attacking the credibility of the Defendant’s evidence.  These are just negative points, criticising what the Defendant did not do rather than what he did which is consistent with representations having been made to him.  He argues that the Defendant is highly educated and if the representations had been made, the Defendant who drafted the ETA would have put them in the agreement.  The simple answer given by the Defendant is that he was  told by the Plaintiff that was unnecessary and he simply accepted what the Plaintiff told him.  Mr Cheung submits that this explanation was made up in the course of cross-examination and had never been proffered in the witness statement.  I think it is unrealistic to suggest that the Defendant and his solicitor should include every possible allegation in the witness statement.  According to the Defendant, the Plaintiff visited him often and took him to see important business people.  He trusted the Plaintiff whom he considered as an uncle to him.  The Plaintiff did not dispute that and agreed that the Defendant trusted him.  I find the Defendant’s explanation credible.

58.  Mr Cheung makes the point that among the e-mails and the equity transfer refund request issued by the Defendant in which the injection of $20 million was mention, they only stated that it was Tam or Tam of Group Sense SEA who failed to invest and not Group Sense International.  I think one cannot be too precise when dealing with a company.  A company can only perform acts through a natural person.  Very often in ordinary communication, a company and the person representing it are referred to interchangeably.  The e-mails mentioned by Mr Cheung were all issued in 2010.  But up till 18 November 2009, the Defendant was unequivocal that the Plaintiff had represented to him about the resolution by權智, the public listed company, which was why he called for a shareholders meeting.  In particular, the equity transfer refund request dated 20 January 2010 relied on by Mr Cheung proved him wrong.  In that document, it is stated:

“This request has been made for reasons stated herein below.

1. The original agreement of HKD1 Million in exchange for 5% equity in Top Green Company was due to Group Sense (Int) Ltd a publicly listed company in Hong Kong is to invest HKD20 Million into the project.

2.     Group Sense (Int) Ltd was to provide employment to    Mr Ngai and Mr Ming as sales and marketing team.”

(My emphasis added)

Though the word resolution was not used, the request mentioned the    $20 million investment by Group Sense International.  I think this document destroyed the entire basis of Mr Cheung’s argument.  I have  no doubt that in the e-mails referred to by Mr Cheung, the Defendant  was referring to Tam acting on behalf of Group Sense International and not in his personal capacity or for and on behalf of Group Sense SEA.

59.  Next, Mr Cheung refers to clauses 2 and 3 of the Cooperation Agreement and argues that pursuant to those clauses the Defendant had  to contribute $25,000 to Top Green upon signing the Cooperation Agreement and $1.8 million if Group Sense International were to invest $20 million.  He further argues that if there was the $20 million resolution, there was no need to have the Cooperation Agreement.  The Defendant admitted he was careless. His explanation is that he could not read Chinese, did not understand the terms of the Cooperation Agreement,    he was told it was just a formality, he trusted the Plaintiff and signed.    He said that the people present knew that he could not read Chinese.     Mr Cheung queries the credibility of that explanation.

60.  The Defendant was born and educated in the United Kingdom.  He came to Hong Kong in 2006.  He explained that a Chinese report he prepared for Dongjiang was written with the help of his friends. That evidence was unchallenged.   There is no dispute that the Defendant cannot read or write Chinese.  He said that the Plaintiff and those present when the Cooperation Agreement was signed knew that he could not  read Chinese and told him to sign as a formality.  That evidence was not challenged.  It is also an undisputed fact that he trusted the Plaintiff.   I have no doubt that the Defendant’s explanation is true.

61.  Having accepted the Defendant’s explanations, the above circumstances suggest that the ETA and Cooperation Agreement were entered into under suspicious circumstances.  The Defendant said that    he had not contributed $25,000 pursuant to clause 4 of the Cooperation Agreement.  The balance sheet showed a loan in the amount of $25,000  was due to him from Top Green.  It has not been suggested to the Plaintiff that he paid the said loan on behalf of the Defendant.  Putting that aside, the Cooperation Agreement was signed under suspicious circumstances.  The Defendant paid $1 million for 50 shares with a paid up capital of $50.  Under the Cooperation Agreement, he had to pay $25,000 forthwith upon signature but, on the evidence which I accept, he did not have to pay.   Not only that, he would have to pay another $1.8 million as submitted by Mr Cheung.  So, he would have to pay about $3 million for a pepper corn.  As a matter of law, the pepper corn may be good consideration, but the whole arrangement does not make any sense.  The only inference that makes sense is that the Plaintiff took advantage of the youthfulness and inexperience of the Defendant and the trust the Defendant had in him to sell to the Defendant 50 shares for $1 million.  The Defendant was not only young and inexperienced but also very naïve and careless.

62.  Summing up this part of the evidence, I find the Defendant more credible.  His evidence is detailed, cogent, consistent and supported by contemporaneous documents, whereas the Plaintiff’s evidence is vague, imprecise, lacking in detail and inconsistent with contemporaneous documents.  The Plaintiff was selective in telling the truth.  Obviously, he had much to hide.  Based on these reasons and my finding in relation to the other representations and the incident at the Airport, I find that the Plaintiff had represented to the Defendant that Group Sense International was the majority shareholder and had passed   a resolution to inject $20 million into Top Green for the copper  extraction technology.

Share Value Representation

63.  According to the Defendant, during those meetings with the Plaintiff, the Plaintiff told him that based on the resolution of Group Sense International to inject $20 million into Top Green, 5% of the issued shares in Top Green had a value of $1 million.  He said that the purchase price of the shares was arrived at on that basis.  The Plaintiff denied he had made the $20 million Resolution Representation and denied that the purchase price for 5% of the shares in Top Green to be sold to the Defendant was calculated on that basis.  Under cross-examination, he could not advance any basis as to how the purchase price was arrived at.  He admitted that no books, account or balance sheet of Top Green had been shown to the Defendant for the purpose of discussing the purchase price.  He just evaded the questions asked of him by saying that there were discussions and the price was agreed.  He was very vague.  I do not find the Plaintiff credible.

64.  Top Green had an issued share capital of $1,000 represented by 1,000 shares of $1 each.  Five percent of the issued shares could only have a value of $50.  Of course, Top Green may have other assets, such as the technology which has been transferred from Greentech and possibly other intangible assets.  Mr Cheung refers to the Defendant’s evidence that with the technology the annual profit for Top Green was about several million dollars. Hence, he argues that the 5% shares are not worthless.  The Defendant’s evidence must be understood in its proper context.  Top Green could not generate several million dollars profit with its $1,000 capital.  The Plaintiff must be stating his opinion on the basis that Top Green had the benefit of the injection of $20 million from Group Sense International.  Without that injection, Top Green cannot generate that profit.  The 5% equity would still be worth nothing.  With that injection as capital, the 5% equity would be diluted as to be worthless.  If the injection was by way of a loan, the liability would have to be reflected in the value of the shares.  In either case, the value per share of Top Green would be diluted or reduced to $1.  Anyway, I do not think this adversely affects my assessment of the Defendant’s credibility.  It only reflects how naïve and green in experience the Defendant was.      I, nevertheless, accept the Defendant’s evidence and reject the Plaintiff’s.

65.  On the totality of the evidence, I find that the Plaintiff had represented to the Defendant that by reason of Group Sense International’s resolution to inject $20 million into Top Green, the value of 5% of the shares the Plaintiff was going to sell to the Defendant had    a value of $1 million. 

Employment Representation

66.  The representation pleaded in paragraph 5(f) of the defence and counterclaim is that the Plaintiff could procure Top Green to employ the Defendant at a monthly salary of not less than $10,000.  The Defendant’s evidence in his witness statement is that during the discussions, the Plaintiff indicated that he was eager to have the Defendant join Top Green because of his educational background and expertise in the environment protection field and promised that he could secure employment for the Defendant with Top Green at a monthly salary of between $10,000 to $20,000.  The promise must of course be conditional on the Defendant purchasing the shares. 

67.  However, under cross-examination, the Defendant said that the Plaintiff promised him employment with Group Sense International.  Mr Cheung suggests that the Defendant was changing his evidence and not credible.  The Defendant admitted that what was said in the witness statement was a mistake.  I think counsel’s criticism is unfair.  In his e-mails to the Plaintiff, the Defendant had been consistently complaining about the Plaintiff failing to honour his promise of procuring his and the Plaintiff’s employment by Top Green.   

68.  In his e-mail dated 12 January 2010, the Defendant wrote:

“Thomas [Tam] never invested HKD20 Million into the Top Green company for the project and never employed both of us into Top Green.”

(Emphasis underlined)

It is amply clear that the Defendant was referring to the Plaintiff’s representation of procuring his employment by Top Green.

69.  In his e-mail dated 14 January 2010, the Defendant wrote:

“This request is for you to sign because you told me on the meeting last time that you will definitely refund the money I paid for the equity because both of us think that this is not what we had both expected, especially Thomas of Group Sense have not invested the HKD20 Million into the project and that he has not employed us as paid employee of Top Green.”

(Emphasis underlined)

Again, the Defendant expressly mentioned about employment as employee of Top Green.

70.  In the equity transfer refund request which was attached to the above e-mail, which was quoted in paragraph 58 above, it read:

“Group Sense (Int) Ltd was to provide employment to [the Plaintiff] and [the Defendant] as sales and marketing team.”

The employer was not identified.  As the request was attached to the e-mail, it must be read subject to the unequivocal terms in the e-mail, ie the Defendant was to be employed as employee of Top Green.

71.  While the Defendant’s evidence departed from the pleading and the witness statement and he expressly said that the pleading and witness statement were incorrect, pleading is a matter for counsel and   not the witness or the lay client.  The documents reflect that the representation was about employment by Top Green.  The Defendant might have gone astray in the witness box.  He was mistaken.  As usual   a person who is mistaken does not appreciate that he is mistaken and thought others are mistaken.  I accept the Defendant’s evidence that the representation had been made to him by the Plaintiff.  On the totality of the evidence, I find that the representation is to the effect that the Plaintiff will procure the Defendant’s employment by Top Green.  Mr Cheung submits that the Plaintiff is only a minority shareholder of Top Green.  That is besides the point.

The Shenzhen Bao’an Airport incident

72.  After the meeting with Tam on 26 March 2010, it was decided to close down the operation of Top Green.  Since then, the Defendant had a number of meetings, discussions and telephone conversations with the Plaintiff seeking to transfer the 50 shares in Top Green back to the Plaintiff in return for the sum of $600,000 he paid.  No agreement was reached. The Defendant kept sending e-mails to the Plaintiff seeking return of the sum of $600,000.  The Plaintiff ignored him.  The Defendant reported the matter to the Shatin Police Station in September 2010.

73.  As fate would have it, on 11 October 2010 the Defendant and his mother went to the Airport to meet with Lin.  There, the Defendant happened to see the Plaintiff.  The Defendant went forward to intercept the Plaintiff and demanded return of the sum of $600,000.  Just at that moment, Lin and his two friends arrived and joined the Defendant and  his mother.  A commotion was caused as voices were raised which caught the attention of an airport security officer.  The officer took the party out of the airport terminal to a room inside a police sub-station and told them to discuss a settlement.

74.  The Plaintiff, Defendant and his mother had a lengthy discussion.  During the meeting, the Plaintiff telephoned his friends to complain that his life was in danger and that he was forced by many scoundrels to pay money.  One of the telephone calls was made to Tam.  At Tam’s request, the Plaintiff passed the telephone to the Defendant  who assured Tam that what the Plaintiff complained was untrue.

75.  Eventually, the Plaintiff and Defendant reached agreement on the terms of the Settlement Agreement.  The Plaintiff drafted the Settlement Agreement which the Plaintiff and Defendant signed.    Lin also signed as witness.  At the suggestion of the airport security officer, they all affixed their thumbprints on the Settlement Agreement.  Under the terms of the Settlement Agreement, the Plaintiff shall compensate the Defendant in the sum of $400,000; of which $50,000 was to be paid forthwith, $30,000 to be paid on 25 October 2010 and the balance by eighteen instalments.  The Defendant shall keep the 5% shares in Top Green.  If Top Green should be closed down, the Plaintiff will compensate the Defendant with his bonus shares(紅股)in Guanzhou Audio Visual City(廣州音像城).

76.  The above factual background is not disputed by the Plaintiff.  The Plaintiff’s case is that he was intercepted by one male and then surrounded by four others while the Defendant watched by in the vicinity. He painted a picture that he was set up.  It was not a chanced meeting.  The Defendant had arranged for five men to intercept him in the Airport, while the Defendant watched by in the vicinity.  According to the Defendant, he was waiting in the departure hall with his mother for Lin.  He suddenly saw the Plaintiff and dashed towards him to demand return of the sum of $600,000.  The Plaintiff wanted to leave and the Defendant blocked the way with his body.  It was then that Lin and one friend arrived.  The Plaintiff said he struggled and was assaulted by Lin and    his group which alerted the airport security officer.  He said he suffered injury.  The Plaintiff was on his way to Beijing.  He offered no explanation why the Defendant could have known where he would be  and set him up.  There is no evidence at all that the meeting was a set up.  If that meeting was not a set up, it must follow that it is inherently incredible that Lin and the alleged four men who had never seen the Plaintiff before would for no reason assault him while the Defendant was watching by in the vicinity.  The Plaintiff’s evidence bears the hallmark of a badly concocted and exaggerated case.  On the other hand, the Defendant’s evidence is credible.  He had lost contact with the Plaintiff for months.  He would not let go this $600,000 opportunity to reason  with him.  Hence, he rushed towards him, blocked his way and reasoned with him.  Then his mother and Lin arrived to assist.

77.  The Plaintiff said after being taken to the room in the police sub-station, he was prevented by the Defendant and Lin from leaving.   He was followed wherever he went.  He was followed to the toilet and when he went to buy his lunch box.  While this court has no knowledge of how the PRC police would handle situation such as this, it is difficult to imagine they would, as alleged by the Plaintiff, side with the Defendant to exert pressure on him to settle by preventing him from leaving against his will.  It would have been more convenient for the police to separate them and let each other go their own way.

78.  More importantly, the Plaintiff’s evidence failed him when it comes to fine details.  His evidence is lacking in details.   He said that the Defendant demanded him to buy the shares back for $600,000.  He said he had no money and then the Defendant reduced the amount to $400,000.  For fear of the danger to his person, the Plaintiff wrote and signed the Settlement Agreement and paid the two sums.

79.  By way of contrast, the Defendant’s mother’s evidence is most compelling.  She gave an explanation for every detail that took place inside that room in the police sub-station.  She took over the negotiation from the Defendant, like a good mother when her son was in trouble.  She started with demanding the Plaintiff to buy back the shares for $600,000 which was the amount the Defendant had paid and the amount which seemingly the Plaintiff had agreed previously to pay.  The Plaintiff said he had no money.  This evidence is accepted by the Plaintiff.

80.  As the next step in the bargaining process, the Defendant’s mother referred to the net asset value of negative $1.5 million which she learned from the balance sheet of Top Green which Tam had previously given her.  She said that the Plaintiff replied that there were other expenses incurred which were not included in the balance sheet.  Then making an allowance of $0.5 million, the Defendant’s mother assumed that the loss suffered by Top Green was $2 million and hence the Defendant’s contribution to that loss should be $100,000.  Based on that assumption, she reduced her demand to $500,000.  She said that the Plaintiff refused and telephoned Tam.  There is no dispute that the Plaintiff did telephone Tam.  According to the Defendant, the Plaintiff told Tam on the phone that his life was in danger and he was forced by many scoundrels to pay money.  Then, at Tam’s request, the Defendant spoke to Tam and explained.  This evidence is not disputed by the Plaintiff. Thus, the Plaintiff was free to seek assistance and consultation from other people. This is inconsistent with his evidence of being held inside a room not being allowed to leave until he reached the Settlement Agreement with the Defendant.

81.  According to the Defendant’s mother, after the telephone call, she reduced her demand to $450,000 and the Plaintiff counter offered $400,000.  She agreed on the basis that the Defendant will keep the shares, saying that the amount is not important as long as it was fair as  all of them had their problems. 

82.  Then they discussed about the time of payment.  The Plaintiff offered to pay $20,000 to $30,000; but the Defendant’s mother said that was not sincere and asked for at least $80,000 to $100,000.  The Plaintiff said he could pay $50,000 in cash at the time and asked to pay the balance by eighteen instalments.  The Plaintiff said that he had only one cheque with him and would write out a cheque in the amount of $350,000 to give to the Defendant’s mother as indication of his sincerity but requested her not to cash it on his promise that he would exchange it by eighteen post-dated cheques with staggered dates.  The Defendant’s mother agreed.

83.  Then the parties turned to the 50 shares in Top Green.  The Defendant’s mother said that the shares would be worthless as Tam had said that Top Green would be closed down.  The Plaintiff suggested the Defendant to hold onto the shares and if Top Green was closed down, he would give the Defendant his bonus shares in Guanzhou Audio Visual City as compensation.  According to the Defendant, previously the Plaintiff had offered to compensate the Defendant by swapping the shares in Top Green with the shares in Guanzhou Audio Visual City.  The Defendant’s mother then asked the Plaintiff to draft the Settlement Agreement which he did.  Then the Plaintiff, Defendant and Lin signed and affixed their thumbprints on the Settlement Agreement.

84.  What happened thereafter is not in dispute.  The Plaintiff withdrew RMB20,000 from an ATM machine in the airport terminal and gave it to the Defendant together with cash of RMB5,000 which he had with him. Then the Plaintiff, the Defendant and his mother took a taxi to Lo Wu Train Station to return to Hong Kong.  They alighted the train     at Tai Po Market where the Plaintiff withdrew another sum of $16,000 from an ATM machine in the train station to pay the Defendant.  On the following day, the Plaintiff telephoned the Defendant and told him that  he had other engagements and could not meet with the Defendant to redeem the cheque.  He told the Defendant to cancel his report with the Shatin Police Station.  But the Plaintiff did not honour his agreement to redeem the cheque and the Settlement Agreement.  About a week later, the Plaintiff commenced the present action.

85.  Mr Cheung submits that the Settlement Agreement was a very unfavourable agreement to the Plaintiff.  In essence, the Plaintiff was asked to agree to reduce the original purchase price by $800,000.   No reasonable person negotiating at arms’ length would have agreed unless his will was overborne.  He argues that the incident at the Airport could not have been a coincidence and supports the Plaintiff’s allegation of duress.  He submits that the incident at the Airport is highly relevant to credibility and demonstrates that the Defendant and his mother are not credible.

86.  In my view, on a clear analysis of the evidence, except for the issue of coincidence, there is no substance in Mr Cheung’s submission.  That one coincidence is added onto another and another suggests strongly that everything is not a coincidence but a set up.  It was a coincident that the Defendant and his mother were at the Airport when the Plaintiff arrived at the departure hall.  It was another coincident that Lin and his friend or friends also appeared when the Defendant intercepted the Plaintiff.  The Defendant had lost contact with the Plaintiff for some months. There was nothing to suggest that he could have known that the Plaintiff would be taking a trip to Beijing via Shenzhen at that particular time on that particular day.  Sometimes, one has to accept, as fate has it, coincidence does occur.  I am satisfied that this is such a case.

87.  Was the Settlement Agreement a bad deal for the Plaintiff?  It depends on how one looks at it and, more importantly, whether    the ETA was a good deal for the Defendant or whether it was   entered into as a result of misrepresentation.  On the Plaintiff’s case, no misrepresentation had been made to the Defendant and the Defendant bought 5% equity in Top Green for almost $3 million.  If so, it could not have been a good deal for the Defendant.  Something looks very wrong with that transaction.  As for the Settlement Agreement, leaving aside the question of the misrepresentations, the Plaintiff received $600,000 for his 50 shares in Top Green and a promise for another $400,000.  He was asked to reverse that transaction.  He was asked to pay back $400,000 and to allow the Defendant to keep the 50 shares which, by then, must be obvious to all parties to be worth nothing as the company would be closed down.  He would have to substitute those 50 shares by his bonus shares in Guanzhou Audio Visual City.  The net result is that he would have to reverse the ETA as if that sale and purchase had never taken place and to give to the Defendant his bonus shares in Guanzhou Audio Visual City for $200,000.  There is no evidence on the value of those shares.  The Plaintiff has not really shown how and why the Settlement Agreement was a bad deal for him.  But, if the misrepresentations had been made as alleged by the Defendant, then most probably, it was a good deal for the Plaintiff.  He was only asked to disgorge the benefit under the ETA which he retain not have and to sell his bonus shares in Guanzhou Audio Visual City of unknown value for $200,000 which he was unable to restore to the Defendant.  I would reject Mr Cheung’s submission.

88.  Viewed objectively, the Defendant’s and her mother’s evidence are to be preferred.  Their evidence is detailed, logical and consistent.  The Defendant’s mother explained in great details and step by step how the Settlement Agreement was negotiated and reached.  In contrast, the Plaintiff’s evidence was vague, imprecise and lacking in details.  He was selective in telling the truth.  Furthermore, his conduct was inconsistent with duress having been applied on him.  When he arrived at Hong Kong border, Lin and his friends were no longer with him.  He was only left with a woman and a young man of weak character.  If he had not made the representations and if by duress he was forced to give up his benefit under the ETA, one would expect him to make a complaint to the police as soon as he arrived at Hong Kong border or in Taipo Market MTR station, if he needed more time to compose himself. Instead, he took the MTR with the Defendant to Taipo Market and withdrew $16,000 from an ATM machine to give to the Defendant.  His conduct was inconsistent with a man of his maturity and experience who had been forced to enter into the Settlement Agreement unwilling.     I do not find the Plaintiff credible.  I reject his evidence about duress.  I accept the Defendant’s and his mother’s evidence.  This finding corroborates the Defendant’s evidence on the issue of misrepresentations. 

Conclusion

89.  In conclusion, I accept the Defendant’s evidence.  The Defendant has proved to my satisfaction that the Plaintiff has made the misrepresentations as pleaded to the Defendant.  The representations were not true.  I accept the Defendant’s evidence that he entered into the ETA by reliance on those representations.  The bargain between the parties are wholly different as a result of the misrepresentations.  The shares are worthless to the Defendant.  The Defendant would not be adequately compensated by damages.  Justice requires that the ETA be rescinded. 

90.  The Plaintiff had repudiated the Settlement Agreement by commencing the present proceedings.  The Defendant accepted the Plaintiff’s repudiation and is willing to set off the two sums of RMB25,000 and $16,000 received.  In the circumstances, it is not appropriate to grant the declaration sought in respect of the Settlement Agreement.

91.  Accordingly, I dismiss the Plaintiff’s claim and award the Defendant on his counterclaim the sum of $600,000.  The sum of RMB25,000 at the then prevailing rate of exchange and the sum of $16,000 received by the Defendant from the Plaintiff shall be set off against the award.   The Plaintiff shall pay the Defendant’s costs of this action.  Such costs shall be taxed on party and party basis, if not agreed.  Upon full payment of the judgment sum with interest and costs, the 50 shares sold to the Defendant shall be transferred back to the Plaintiff at the Plaintiff’s own costs.  The Plaintiff shall pay interest in the net amount at judgment rate from the date of this judgment until full payment.