CP MOTORS LTD v. ON CHIT TRANSPORTATION LTD

DCCJ 3655/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3655 OF 2011

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JUDGMENT

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Introduction and background

1. This action arises out of disputes concerning a Toyota make public bus with motor vehicle registration mark LX6669 (the “said Vehicle”).

2. The plaintiff is a company providing financial and management services and buying and selling motor vehicles and public buses. The sole director and shareholder of the plaintiff is one Chan Kar Wang (“Mr Chan”).

3. The defendant is a company providing bus transportation services. The 99.9% shareholder of the defendant is one Li Yu Lap Johnson (“Mr Li”), who, together with his wife, are the two directors of the company.

4. A third party closely involved in the disputes between the parties is one Kung Se Ku (“Mr Kung”). Mr Kung has since 2006 been Mr Li’s business or joint venture partner in the provision of bus services, although the precise extent of their business relationship is the subject of some contention. Mr Kung is the sole proprietor of a business registered under the name of Wah Kee Motor Co. (“Wah Kee”), which is also a provider of bus transportation services. Mr Kung and his wife are also the shareholders and directors of inter alia a company known as Hoi Ki Bus Services Limited (“Hoi Ki”).

5. The plaintiff’s case against the defendant may be summarised as follows:

(1)  By an agreement between the plaintiff and the defendant, the plaintiff agreed to buy and the defendant agreed to sell the Vehicle at the price of HK$810,000 (the “SPA”).

(2)  The SPA was first made orally in early May 2010 during a telephone conversation between Mr Li on behalf of the defendant and Mr Chan on behalf of the plaintiff. The parties subsequently signed a written agreement in Chinese dated 11 May 2010 (the “Written Agreement”) which forms part of the SPA and which provided as follows:

(a)  The defendant, being the owner of the Vehicle, agrees to sell the same to the plaintiff, and both parties agrees that the price shall be HK$810,000;

(b)  The plaintiff agrees that before the signing of the contract (i.e. the Written Agreement) to pay in advance the sum of HK$570,000 to redeem the Vehicle, and to pay the balance to the defendant upon signing of the contract.

(c)  The plaintiff agrees to take possession of the Vehicle at 12:00 on 10 May 2010 and thereafter, shall assume all civil and criminal liabilities in relation to the Vehicle;

(d)  The contract is reached by agreement between the parties, and there shall be two copies of the contract with one copy to be retained by each party. The contract shall become effective on the date of signing.

(3)  Pursuant to the SPA:

(a)  On 10 May 2010, the plaintiff paid to Hitachi Capital (HK) Ltd. (“Hitachi”) a sum of HK$568,436.00, being the outstanding amount due under a hire purchase agreement dated 8 July 2009 in respect of the Vehicle;

(b)  On 11 May 2010, the plaintiff paid to the defendant HK$220,000 by a cashier’s order and HK$13,000 in cash, being the balance of HK$810,000 after deducting the sum paid to Hitachi and miscellaneous expenses and handling charges incurred by the plaintiff totaling HK$8,564 (the “Miscellaneous Charges”).

(4)  The defendant also signed an undated notice of transfer of ownership (form TD 25 issued by the Transport Department) and an undated letter to the Commissioner for Transport confirming the agreement to transfer the bus and relinquishing the right to apply for any further PSL in respect of the Vehicle, in both cases with the name of the transferee in blank (I shall refer to such documents generally as a “Form TD 25” and a “conformation letter” respectively in this judgment).

(5)  Shortly before the SPA, the Vehicle had been seized by Hitachi apparently due to default in hire payments under the hire purchase agreement. On 10 May 2010, in performance of the SPA, the plaintiff took physical possession of the Vehicle at Hitachi’s parking lot upon payment of the outstanding hire purchase payments to Hitachi.

(6)  On 15 August 2011, the plaintiff submitted an application for transfer of ownership of the Vehicle to the Transport Department. However, on 29 August 2011, the Transport Department notified the plaintiff that the transfer of the Vehicle was rejected on the ground that the defendant had, by a letter dated 23 August 2011 to the department, refused to confirm the transfer of ownership. The Transport Department therefore refused to effect the transfer of ownership or to renew the passenger service licence (the “PSL”) of the Vehicle[1].

(7)  By letters through its solicitors, the plaintiff demanded that the defendant remedy its breach of the SPA by sending a written confirmation to the Transport Department consenting to the transfer of the Vehicle. However, the defendant refused to do so, and the Vehicle therefore remains registered in the name of the defendant.

(8)  The PSL of the Vehicle expired on 8 June 2011 whilst the vehicle registration licence expired on 4 September 2011. By a letter dated 3 September 2013 to the Defendant’s solicitors, the Transport Department indicated that if the Vehicle was not properly licenced by 30 April 2014, the registration of the Vehicle would be cancelled.

(9)  The Plaintiff therefore seeks a number of reliefs, including a declaration that “the Defendant’s legal title, rights, interests and benefit of and in the said vehicle be [sic] transferred to and/or vested in the Plaintiff” and an order for “specific performance of the [SPA] that the defendant do forthwith sign and/or execute all documents as required by the Transport Department to effect a transfer of the ownership of the [Vehicle] to the plaintiff.”

(10)  Further, the plaintiff claims damages to be assessed on the basis that “the market rental of the [Vehicle] amounts to HK$2,800.00 per day or HK$28,000.00 per month” and “the plaintiff contracted to sell the [Vehicle] to one Golden Harbour International Travel Agency Limited (“Golden Harbour”) at the purchase price of HK$910,000.00.”

6. On the first day of trial, I indicated to Mr Frederick Fong, counsel for the defendant, that the Re-Amended Defence and Counterclaim (signed by the Defendant’s solicitors) was unsatisfactory in that it contained a number of unparticularised, or at least inadequately particularised, allegations of misconduct and dishonesty on the part of the plaintiff, including inter alia fraudulent misrepresentation, actual undue influence and “unconscionable and/or illegal and immoral conduct”.  It is of course well established that any allegations of fraud or dishonesty must be pleaded with the utmost particularity, and legal practitioners are under a professional obligation not to make such allegations unless supported by sufficient evidence. The Court has the power under RDC Order 18 r.19(1) to strike out such pleas on its own motion where appropriate. I indicated, however, that I would consider giving the defendant an opportunity to remedy the defects in its pleadings, provided that no real prejudice is caused to the plaintiff by the amendments.

7. On 18 October 2013, Mr Fong produced a draft Re-Re-Amended Defence and Counterclaim addressing the concerns I had raised. After hearing from both Mr Fong and Mr Wilfred Tsui, counsel for the plaintiff, I allowed the amendments with costs to the plaintiff and granted leave to the plaintiff to make consequential amendments to its Re-Amended Reply and Defence to Counterclaim.

8. Given the serious allegations levelled against the plaintiff, it is necessary to set out the defendant’s case in some detail:

(1)  Mr Li met Mr Kung in the early 1980s, and since 2006, the two of them developed a close business relationship, “to an extent that the Defendant and Mr Kung’s companies had carried on their respective businesses and/or trades at the same office address.” Mr Kung introduced Mr Chan to Mr Li in or around 2006.

(2)  The defendant purchased the Vehicle in May 2005 and financed the purchase through a hire purchase agreement. The Vehicle was one of the vehicles owned and used by the defendant to provide bus transportation services. On 17 April 2007, the defendant refinanced the “loan” and entered into a new hire purchase agreement with Dah Sing Bank Limited (“Dah Sing”) through the plaintiff as a “financial intermediary” (the “Dah Sing 1^st HPA”).

Dah Sing Surplus Monies

(3)  In April or May 2008, Mr Kung was experiencing financial difficulties and requested a loan from Mr Li. Mr Li was aware that the market value of the Vehicle had appreciated considerably, and he also wished to have some additional cash for the defendant’s business. He therefore agreed to refinance the Vehicle with Dah Sing, again through the plaintiff as “intermediary”. On 4 June 2008, the defendant entered into a new hire purchase agreement for a “loan” of HK$470,000 in replacement of the Dah Sing 1^st HPA, of which HK$285,840 remained outstanding (the “Dah Sing 2^nd HPA”).

(4)  The defendant was thus able to obtain an additional sum of HK$184,160, being the “surplus loan proceeds” (the “Dah Sing Surplus Monies”). However, although the plaintiff received the Dah Sing Surplus Monies on behalf of the defendant, it never accounted for the sum to the plaintiff, or rather paid it to Mr Kung without the defendant’s consent and in breach of trust and its duties as “intermediary”.

Unknown Hire Purchase Agreement

(5)  In July or August 2009, the defendant discovered in the course of renewing the Vehicle’s registration licence that the Dah Sing 2^nd HPA had, unbeknownst to him, been discharged and that the title documents had been redeemed from Dah Sing. Mr Li then learned that the Vehicle had been sold to Hoi Ki without its consent through the plaintiff as the intermediary, and the purchase was financed by a hire purchase agreement with Hitachi (the “Hitachi HPA”). The defendant never received the proceeds of the Hitachi HPA or any purchase money for the Vehicle.

(6)  The defendant never executed any sale and purchase agreement or other documentation as to the transfer of ownership of the Vehicle or in relation to the Hitachi HPA, and if such documents existed, such documents were forged and therefore void and unenforceable against the defendant. In fact, the Transport Department did not have any record showing that Hoi Ki ever applied for the transfer of title of the Vehicle from the defendant.

Seizure and Sale of the Vehicle

(7)  On 5 May 2010, Hitachi “suddenly seized compulsory possession” of the Vehicle from the defendant due to the fact that Hoi Ki had been in default in making payments under the Hitachi HPA.

(8)  The defendant was then pressured by various threats from Mr Chan to sign the Written Agreement. Although the defendant did so, the agreement is invalid, void and/or unenforceable on the grounds that it was executed by the defendant “under duress, actual undue influence, misrepresentation, fraudulent misrepresentation”.

(9)  As to actual undue influence:

(a)  The plaintiff had the capacity to influence Mr Li as:

(i)  Mr Chan had “a very close connection with many highly-ranked officers of many financial institutes [sic] and Mr Chan repeatedly told Mr Li that only Mr Chan and Mr Kung as the representative of the plaintiff and the hirer under the [Hitachi HPA] respectively, but no other, were able to redeem title deeds of [the Vehicle]”;

(ii)  “Mr Li, aged 61 at the time of entering into the [SPA] and of Form 2 education, was particularly vulnerable at the time when [the Vehicle] was seized by Hitachi on 5 May 2010.”

(b)  Mr Chan exerted influence on Mr Li to enter into the SPA by “repeatedly coercing Mr Li (for the defendant) to sign [the SPA] in great haste even [though] there was a better offer in the sum of HK$870,000 from a third party at the material time.”

(c)  The exercise of influence by Mr Chan was undue as:

(i)   “Mr Chan (for the plaintiff) threatened Mr Li that he would receive nothing, if Mr Li did not agree to sell [the Vehicle] to the plaintiff”;

(ii)   “Mr Chan (for the plaintiff) on 11 May 2010 threatened Mr Li that Hitachi would sell [the Vehicle] without further notice, and Mr Chan knew it was false as [the Vehicle] had been redeemed from Hitachi on 10 May 2010”.

(10)  As to fraudulent misrepresentation:

(a)  On 11 May 2010, the plaintiff made the following representations, which were relied upon by the defendant when it signed the Written Agreement:

(i)   “[The Vehicle] and its title deeds were in the custody of Hitachi and would be resold by Hitachi without notice at any time soon”;

(ii)   “Mr Li and/or the defendant had no control over [the Vehicle] if Hitachi resold [the Vehicle] and any proceeds of such sale would go into the pocket of Kung or Hoi Ki.”

(b)  Both representations were made the plaintiff knowing the same to be false:

(i)   “As the plaintiff and/or Hoi Ki had redeemed [the Vehicle] and its title deeds on 10 May 201, one day earlier before [the SPA]” and

(ii)   “As the defendant being the registered owner of [the Vehicle] could exert its right to stop any transfer of the Passenger Service Licence of [the Vehicle].”

(11)  Further or alternatively, the SPA was “tainted with illegality and immoral misconduct of Mr Chan” under the principle of “ex turpi causa non oritur actio.” The illegality and immoral misconduct relied upon was the plaintiff’s conduct in relation to the Dah Sing Surplus Monies and the Hitachi HPA.

(12)  In the circumstances, the Written Agreement is invalid and defendant remains the registered and beneficial owner of the Vehicle.

(13)  Mr Li never signed the Form TD 25 or the confirmation letter for the purpose of the SPA. Rather, the documents were executed by Mr Li “in blank for previous past dealings between the defendant and the plaintiff”.

(14)  Further, whilst the defendant received the sum of HK$220,000, it never received the cash amount of HK$13,000 from the plaintiff. Moreover, the HK$568,437 paid by the plaintiff to Hitachi was not paid to discharge any liability and/or financial burden of the defendant since the defendant never executed or consented to the purported sale of the Vehicle to Hoi Ki or to the Hitachi HPA. Further, the defendant should not be responsible for the Miscellaneous Charges.

(15)  In the circumstances, even if the SPA were valid, the plaintiff repudiated the SPA by failing to make full payment of the purchase price, such repudiation being accepted by the pre-action letters issued by the defendant and/or the lodging of the counterclaim.

(16)  The defendant suffered loss and damage in the amount of the value of a replacement vehicle similar to the Vehicle after deducting the sum of HK$220,000 received by the defendant and giving credit for the sum of HK$368,108 paid in the discharge of the Dah Sing 2^nd HPA. Further, the defendant claims damages for loss of use of the Vehicle, being the market rental from 5 May 2010 up to the date of judgment, at the rate of HK$2,800 per day or HK$28,000 per month.

(17)  In the circumstances, the defendant denies that it is liable for the reliefs sought by the plaintiff, and counterclaims for inter alia: (1) declarations that the SPA is void, invalid and unenforceable and that it is the legal and beneficial owner of the Vehicle; (2) rescission of the SPA; (3) delivery up of the Vehicle; and (4) damages for breach of contract; and (5) payment of the Dah Sing Surplus Monies; and (6) an indemnity against any loss arising from the Hitachi HPA.

9. Similarly, it is necessary to set out in some detail the plaintiff’s response as pleaded in its Re-Re-Amended Reply and Defence to Counterclaim:

(1)  To the plaintiff’s knowledge and understanding, the defendant and Hoi Ki operated a joint venture providing transportation services and/or leasing out buses where the defendant and Hoi Ki would share their buses as common assets of the joint venture. The defendant and Hoi Ki shared and operated their joint venture out of a small office at or near a primary school in Shaukiwan (referred to as the “joint venture office”).

(2)  From time to time, Mr Li and/or Mr Kung asked the plaintiff “to arrange for finance to be provided by [a] financial institution to the joint venture by arranging the defendant and/or Hoi Ki to charge the joint venture vehicles as security for the finance.” Such “loans” would be obtained by either the defendant or Hoi Ki depending upon who was the registered owner of the vehicle, and Mr Li and Mr Kung would arrange between themselves as to how the defendant and Hoi Ki would settle the “mortgage repayments”.

10. I pause here and observe that in this action, both parties’ legal representatives have in their pleadings and in submissions treated hire purchase agreements as a form of collateralised or secured loan facility. Repeated references are made to a “charge”, “mortgage” or “pledge”, which I have placed in quotation marks in this judgment. Whilst this may be a layman’s understanding of the transactions in question, it is plainly incorrect as a matter of law.

11. It is well established that the legal nature of a hire purchase agreement is fundamentally different from a loan secured by a charge or mortgage. In a basic hire purchase transaction (there are of course variations), the financing party or institution purchases the chattel from the seller or dealer and then lets it on hire to the customer (the actual user of the chattel) coupled with an option by the hirer to purchase when the instalments of hire reach a stated figure, usually, the purchase price plus an amount representing interest on the transaction. See e.g. Sykes: The Law of Securities, 5th Edition at pp 539-540.

12. This can be seen, for instance, from the Dah Sing 2^nd HPA, where the defendant is described to be the “hirer”, Dah Sing the “owner” and the plaintiff the “dealer or supplier” of the Vehicle. It should be noted, however, that although Dah Sing is the owner of the vehicle, the hirer, i.e. the defendant, remained the holder of the PSL and the registered owner of the Vehicle. In refinancing the vehicle under the Dah Sing 2^nd HPA, the plaintiff first repurchased the Vehicle from Dah Sing by exercising the option to purchase the Vehicle pursuant to an authorisation letter from the defendant, being the hirer, authorising the plaintiff to settle the account under the Dah Sing 1^st HPA. The plaintiff then resold the Vehicle as a dealer back to Dah Sing, with whom the defendant, as hirer, entered into a new hire purchase agreement, i.e. the Dah Sing 2^nd HPA. Hence, the Dah Sing Surplus Monies were not in fact proceeds of any loan, but the difference between the repurchase price under the Dah Sing 1^st HPA and sale price to Dah Sing under the Dah Sing 2^nd HPA.

13. As will be seen from the Hitachi hire purchase agreement below, one variation of such an arrangement is that the hirer is a party other than the registered owner of the vehicle. In such a case, the financing party or institution will require the execution of a “nomination agreement” by the hirer and the registered owner, the latter being referred to as the “licence holder” or “nominee” in the agreement. The effect of the nomination agreement, broadly, is that the registered owner agrees to be agent of the hirer, and to hold the PSL as nominee on behalf of the hirer. The nomination agreement is significant in that, perhaps counter-intuitively at first blush, it renders the registered owner of the vehicle to be no more than a nominee of the hirer (who may never have had any interest in the vehicle). Any rights under the hire purchase agreement, including the option to purchase the vehicle, are vested solely to the hirer rather than the licence holder.

14. Returning to the narrative of the plaintiff’s case:

(1)  At the request of Mr Li to obtain further finance for the joint venture by “recharging” the Vehicle, the plaintiff arranged for the Dah Sing 2^nd HPA on or around 4 June 2008.

(2)  After deducting an agreed commission of HK$10,000, Mr Chan “attended the joint venture office and paid over the Dah Sing Surplus Monies in cash to Mr Kung in the presence of Mr Li.”

(3)  No complaint was raised by Mr Li or the defendant in respect of the Dah Sing Surplus Monies until it was raised for the first time in the Defence and Counterclaim (filed on 22 December 2011).

(4)  In or about the end of June or early July 2009, Mr Kung informed Mr Chan that the joint venture wished to “re-charge” the Vehicle for further finance and asked Mr Chan to liaise with Hitachi. However, Hitachi noted that the Vehicle had been “pledged” by the defendant a number of times and there was still an outstanding amount due under the Dah Sing 2^nd HPA. Therefore, Hitachi indicated that it would only provide finance if the Vehicle were transferred to a new owner and that the hire purchase agreement be entered into by the new owner.

(5)  Mr Li agreed to such an arrangement and caused the Defendant to transfer the Vehicle to Hoi Ki under a purported sale from the defendant to Hoi Ki. The plaintiff was then given the relevant documentation signed by the defendant and Hoi Ki for the purpose of making the application for hire purchase, which Mr Chan submitted to Hitachi.

(6)  After Hitachi approved the application, the plaintiff applied its own money to discharge the Dah Sing 2^nd HPA and redeem the Vehicle. Mr Chan then brought the hire purchase agreement prepared by Hitachi to the joint venture office for Hoi Ki to execute. Upon receiving the “loan money” from Hitachi under the Hitachi HPA, the plaintiff deducted the redemption money it had paid to Dah Sing and a further sum of HK$10,000 as commission, and delivered the balance to Mr Kung in the presence of Mr Li at the joint venture office.

(7)  The plaintiff specifically denies that any of the documents in relation to the Hitachi HPA were forged or that Mr Chan had forged or procured the same by fraud, and asserts that on their face, the documents appear to have been duly executed by the defendant.

(8)  In or about May 2010, Mr Chan was informed by an employee of Hitachi over the telephone that Mr Li had requested Hitachi to seize the Vehicle and that Hitachi was told that neither Hoi Ki nor the defendant would be making any further payments.

(9)  Mr Li approached Mr Chan and asked whether the plaintiff would be interested in purchasing the Vehicle, with part of the purchase price to be paid to Hitachi to redeem the Vehicle and the remainder to be paid to the defendant. The defendant agreed, and the parties entered into the SPA.

(10)  As the hirer in the Hitachi HPA was Hoi Ki and that “according to the plaintiff’s knowledge the Vehicle belonged to the joint venture”, Mr Chan approached Mr Kung for Hoi Ki’s agreement (a) to allow the plaintiff to redeem the Hitachi HPA and (b) to pay the balance of the purchase price to the defendant. Mr Kung agreed.

(11)  The plaintiff denies that Mr Chan made any of the threats or misrepresentations alleged by the defendant, that Mr Chan had the capacity to exert undue influence on Mr Li, or that he did so. Further, the transaction was at arm’s length and the price of HK$810,000 was a fair market price at the time.

(12)  The Form TD 25 and confirmation letter signed by the defendant in blank were specifically for the purpose of the SPA.

(13)  Having paid the full purchase price of HK$810,000 under the SPA, the beneficial ownership of the Vehicle has been transferred and is vested in the plaintiff. The plaintiff thus denies that the defendant is entitled to rescind the SPA or that that the plaintiff had repudiated the same.

The Evidence

15. At the trial, Mr Chan and Mr Kung gave evidence for the plaintiff, while Mr Li gave evidence for the defendant.

16. It is clear from the manner in which they gave their evidence at the trial that Mr Chan, Mr Kung and Mr Li are all intelligent men experienced and knowledgeable in their respective trades. In particular, although Mr Li may have received formal education only up to Form 2, he struck me as a shrewd businessman with a strong personality and who was fully capable of pursuing and defending his own interests.

17. I regret to say, however, that I found Mr Li’s evidence generally to be less than reliable. There were numerous inconsistencies in his evidence when viewed against the documentary evidence or previous stances that he or the defendant had taken. He was unable to give satisfactory explanations for such inconsistencies when confronted with them in cross-examination. I have therefore been compelled to treat his evidence with some caution, especially where such evidence is uncorroborated by any contemporaneous documentary evidence.  On the whole, I preferred the evidence of Mr Chan to that of Mr Li.

18. Part of the evidence adduced by the defendant in this case were transcripts of a series of six telephone conversations recorded by Mr Li apparently using a digital recording pen without the knowledge of the other side. Five of these conversations took place between 7 May 2010 and 10 May 2010 and the last one took place on 13 February 2012. The court heard the actual recordings during the trial. I shall summarise the contents of each of these conversation briefly and make some preliminary observations.

19. The first recorded conversation took place on Friday, 7 May 2010 at 9:00 pm between Mr Chan and Mr Li. It appears that sometime before that conversation, Mr Li had orally agreed that the defendant would sell the Vehicle to the plaintiff for HK$800,000. However, Mr Li subsequently changed his mind and said that there was another buyer who was willing to offer him HK$850,000. In this conversation, Mr Chan sought to persuade Mr Li to reconsider. In summary, Mr Chan told Mr Li that other buyers would not be able to redeem the Vehicle from Hitachi. Mr Chan said that Hitachi had made it clear that it required not only a letter of authorisation from Hoi Ki but also that Mr Kung attend personally at Hitachi’s office due to the number of outstanding payments. Mr Chan further said that it was only after numerous long distance telephone conversations that he was finally able to persuade Mr Kung (who was apparently in China at the time) to assist. Mr Li maintained that he was told by other potential buyers that they would be able to redeem the Vehicle. Mr Chan warned that Hitachi had already indicated that unless the Vehicle was redeemed by Monday, 10 May 2010, it would be sold by Hitachi, and that the proceeds of sale would then go to Mr Kung. In the end, Mr Chan said he would ask a Mr Lam of Hitachi to call Mr Li and explain the situation to him.

20. The second recorded conversation took place on the same day at 10:17 pm between one Mr Chan of Hitachi and Mr Li. Although part of the conversation was inaudible, Mr Chan explained to Mr Li that only Mr Kung could redeem the Vehicle. Mr Chan also stated that his superiors required Mr Kung to attend Hitachi’s office personally and that a letter of authorisation would not be sufficient. Mr Li asked Hitachi to hold off selling the Vehicle until Wednesday, but Mr Chan indicated that the best he could do was to hold off until Monday. In his conversation with Mr Chan, it was clear that Mr Li was experienced with the operation of hire purchase agreements. Significantly, Mr Li acknowledged that the Hoi Ki was the hirer of the Hitachi HPA, and made no complaint about the Hitachi HPA. Mr Chan also told Mr Li that the amount required to redeem the Vehicle was around HK$580,000, including miscellaneous expenses. In the end, Mr Chan told Mr Li that the matter needs to be sorted out quickly, and that he should ask Mr Chan of the plaintiff to contact him if he had any more queries. Mr Li then thanked Mr Chan for his help.

21. The third recorded conversation took place on the same day at 10:57 pm between Mr Chan and Mr Li. The two of them discussed Mr Li’s conversation with Hitachi and Mr Li appeared to accept that without Mr Kung’s assistance, the Vehicle could not be redeemed. Mr Chan repeated his offer of HK$800,000, which Mr Li appeared to accept. They then moved on to discuss matters concerning other vehicles.

22. The fourth recorded conversation took place 10 May 2010 at 4:30 pm between Mr Chan and Mr Li. Mr Chan had already settled the account with Hitachi and discharged the Hitachi HPA at 1:54 pm on that day. It is clear that there had been one or more conversations between the third and fourth recorded conversations. There is some contention as to the timing of such conversations, but it is of no great significance. The point was that Mr Li had once again changed his mind and was unhappy about the price. Mr Chan was clearly frustrated and told Mr Li that he had finally managed to persuade his partner to increase the offer by HK$10,000 to HK$810,000. It is clear from this conversation that Vehicle had already been redeemed from Hitachi. Mr Chan asked Mr Li to accept the deal and be done with it. Mr Li maintained, however, that someone had offered him HK$870,000 for the Vehicle. In the end Mr Chan hung up with no consensus having being reached.

23. There is one excerpt of this conversation that I should mention. At one stage, Mr Chan said:

“你唔好再 講嗰啲嘢喇阿雪糕佬[2]剃人頭者頭亦被人剃呀你成曰話啲嘢冇效。。。我同你講丫家啲文件呢。。。人哋已經贖X走晒喇。。。燒X埋添喇你走去報差館啦。。。你你你走去你咪去玩嘢丫嗱你講話一句玩嘢得㗎喇。。。你斗零都唔使收㗎。。。”

The defendant contends that in this passage Mr Chan was suggesting that evidence of the alleged misconduct of Mr Chan and Mr Kung concerning the Hitachi HPA had been destroyed. Having heard the recording and the evidence of Mr Chan and Mr Li, I am not persuaded that that is what was meant. The words were clearly an outburst of frustration and their meaning is somewhat difficult to understand. However, what Mr Chan appeared to be saying was that as the Vehicle’s registration papers had already been redeemed from Hitachi, his partner could do whatever he wanted with them, and if Mr Li continued to be difficult, he would receive nothing.

24. The fifth recorded conversation took place on the same day at 5:44 pm between Mr Chan and Mr Li. Again, Mr Chan attempted to persuade Mr Li to accept the price HK$810,000, in which case Mr Li would be able to pocket some HK$200 odd thousand, and follow through with the deal. If not, Mr Li should bring HK$600 odd thousand, being the amount he and his partner had paid to redeem the Vehicle from Hitachi and their expenses, and take the Vehicle back. Mr Li said he had to discuss the matter with his wife and would call back Mr Chan around 6:00 pm. Mr Chan’s evidence is that Mr Li called him back shortly after 6:00 pm and agreed to the deal. Hence, the Written Agreement was signed on the next day.

25. The sixth and final recorded conversation took place on 13 February 2012 at 7:00 pm, which was after the commencement of these proceedings. Upon seeing the date of the conversation and after a cursory glance of transcript, it was clear that these were settlement discussions between Mr Li and Mr Chan. I immediately raised with Mr Tsui whether the plaintiff consented to the disclosure of this conversation. Mr Tsui indicated that he had no objection. In the conversation, Mr Chan invited Mr Li to settle the action. However, Mr Li said he was concerned that if they settled, Golden Harbour would seek to enforce the Golden Harbour Contract against the defendant (see below). More importantly, the defendant relies upon the fact that Mr Li mentioned a number of times in that conversation that he never signed the Golden Harbour Contract, and there did not appear to be any rebuttal from Mr Chan. There was also some discussion as to whether matters discussed in mediation proceedings were confidential.

26. In his evidence, Mr Chan, when asked by Mr Fong as to why he did not rebut the suggestions by Mr Li, explained that this was not the first time Mr Li had disputed signing the Golden Harbour Contract. Mr Chan said that he told Mr Li on a number of previous occasions that merely because he did not see him sign the document did not mean that he did not sign it and did not see the point of arguing with Mr Li again over this matter.

The Joint Venture

27. As mentioned above, it is the defendant’s own pleaded case that since 2006, Mr Kung and Mr Li had developed a close business relationship “to an extent that the Defendant and Mr Kung’s companies carried on their respective businesses and/or trades at the same office address.” The plaintiff goes further to say that the defendant and Hoi Ki in fact operated a joint venture to provide transportation services and shared their respective buses as common assets of the joint venture. Further, Hoi Ki and the defendant would allow their respective vehicles to be used to obtain financing for the joint venture.

28. In his evidence, however, Mr Li sought to distance himself from Mr Kung and his companies. He stated that:

(1)  The defendant owned four buses in total, two of which were driven by himself and his wife, namely the Vehicle and a vehicle with registration mark EW9289. The defendant leased the remaining two buses with registration marks MV8161 and DC1679 to Wah Kee. As a result of these business dealings with Mr Kung, Mr Li often visited the joint venture office and would use the photocopier there. Mr Li also allowed the defendant’s buses to be parked at the school parking lot.

(2)  However (contrary to the defendant’s pleaded case), he never shared an office with Mr Kung or his companies, and the defendant’s office was at all times at his own home, as shown in the defendant’s business registration certificate.

(3)  Further, the defendant never had any joint accounts or earned any joint income with Mr Kung or his companies. When the defendant purchased MV8161 and DC1679 by way of hire purchase, it paid the initial instalment of hire. It was then agreed between Mr Li and Mr Kung that Wah Kee would lease the vehicles from the defendant by paying the hire payments on behalf of the defendant.

(4)  There was never any joint ownership, joint financing or joint payment of hire instalments in relation to any vehicle.

29. Mr Li’s evidence stands in stark contrast, however, to the position set out in a letter before action from the defendant’s solicitors dated 28 September 2010 to Wah Kee and Mr Kung (the “September 28 Letter”). In that letter it is stated that inter alia:

(1)  In respect of EW9289, Mr Li agreed to assist Mr Kung and Wah Kee to acquire a loan of about HK$465,000 by providing the vehicle as security to Hitachi under a hire purchase agreement and that Mr Kung and Wah Kee agreed to be jointly and severally liable for the loan.

(2)  In respect of DC1679, it was agreed between Mr Kung and Mr Li that Mr Li would pay the initial deposit of HK$250,000 for the vehicle, and Mr Kung would be responsible for paying the instalments for the loan of HK$280,000 for DBS. It was also agreed that Mr Kung was entitled to use DC1679 free of rent and that if DC1679 was sold in the future, Mr Kung and Mr Li would split the sale proceeds on a 50:50 basis.

(3)  Significantly, in respect of the Vehicle, the defendant and Mr Li agreed to assist Mr Kung and/or Wah Kee to acquire a loan of HK$470,000 by providing the Vehicle as security to Dah Sing under the Dah Sing 1^st HPA. Mr Kung and Wah Kee agreed to be jointly and severally liable to fully repay the loan plus interest. 

30. Further, as accepted by Mr Li in cross-examination, the dealings between Mr Li and Mr Kung extended to at least two further vehicles:

(1)  Hoi Ki was the registered owner of two buses with registration marks KL8081 and NA6072, which were the subject of hire purchase agreements with Hitachi and Dah Sing respectively, and in both cases the defendant was the hirer.

(2)  After the relationship between Mr Li and Mr Kung soured in early 2010, Mr Li requested Hitachi and Dah Sing to seize the vehicles and to terminate the hire purchase agreements. Hitachi and Dah Sing then sold the vehicles, and the defendant received and retained the balance of the proceeds of sale.

31. I shall return to the September 28 Letter later, but suffice it to say here that the business relationship between Mr Li and Mr Kung exceeded far beyond what Mr Li admitted to in his evidence. Whatever the precise arrangements between Mr Kung and Mr Li may have been, I would accept that, to third parties including the plaintiff, there would at least appear to have been an informal joint venture or cooperation between Mr Li and Mr Kung and their respective companies at the time of the Dah Sing 2^nd HPA and Hitachi HPA.

The Dah Sing Surplus Monies

32. The first point to be made on this issue is that there is no evidence, other than Mr Li’s bare assertions, that Mr Li or the defendant ever complained or demanded the Dah Sing Surplus Monies until the filing of the defence and counterclaim in this action on 22 December 2011, some three and a half years after the event. It should be borne in mind that the Dah Sing Surplus Monies was not an insubstantial sum to Mr Li, who on his own case was in need of liquidity at the time.

33. The defendant’s case is that:

(1)  Mr Li did confront both Mr Chan and Mr Kung about the Dah Sing Surplus Monies (although it is unclear when this happened). However, both of them failed or refused to provide any explanation.

(2)  Due to the “lack of knowledge of what had happened” and the fact that “Mr Kung had been a good friend of Mr Li”, the defendant made no “immediate and drastic steps to demand payment” from the plaintiff or Mr Kung. Further, no demand was made at the time as the non-payment “had not immediately and adversely affected the defendant from making use of the Vehicle to earn income”.

(3)  Mr Li further expected either the plaintiff or Mr Kung would make full payment of the surplus monies to the defendant, and that Mr Li proposed to shoulder the hire rental payments under the Dah Sing 2^nd HPA on the defendant’s behalf until the amount of the Dah Sing Surplus Monies had been repaid.

34. However, the defendant’s case here does not sit well with the stance taken in September 28 Letter. As mentioned above, it was stated that the defendant and Mr Li agreed to assist Mr Kung and Wah Kee to acquire a further loan of about HK$470,000 by providing the Vehicle “as security” under the Dah Sing 2^nd HPA and that Mr Kung and Wah Kee had agreed to be jointly and severally liable to fully repay the “loan” plus interest. There is no mention that the Dah Sing Surplus Monies had somehow been paid to or received by Mr Kung without the consent of the defendant or Mr Li. As mentioned above, Mr Li did not strike me as someone who would have stood idly by had the Dah Sing Surplus Monies simply disappeared or had been paid to Mr Kung without his consent.

35. I should mention that it is Mr Kung’s evidence that he gave HK$40,000 out of the Dah Sing Surplus Monies to Mr Li. Whatever may have been the arrangement between Mr Kung and Mr Li as to the use of the Dah Sing Surplus Monies, which is not in issue in this action, I reject the allegation that the plaintiff had failed to account for the Dah Sing Surplus Monies or that it had paid them to Mr Kung without the plaintiff’s consent. I also accept Mr Chan’s evidence (which appears to be accepted by Mr Kung) that there was an agreement between the plaintiff, Mr Chan and Mr Kung that the plaintiff would charge and deduct a commission of HK$10,000 for arranging such hire purchase transactions.

36. It is clear that the claim for the Dah Sing Surplus Monies was little more than an afterthought and a reaction to the plaintiff’s claim under the SPA. There is no merit to the claim.

The Hitachi HPA

37. As mentioned above, the defendant’s case is that Mr Li had no knowledge that the Dah Sing 2^nd HPA had been discharged or that the Hitachi HPA had been entered into until “July or August 2009” (the date of the Hitachi HPA was 8 July 2009), when he attempted to renew the Vehicle’s registration licence.

38. The plaintiff’s case, on the other hand, is that shortly before the Hitachi HPA, Mr Kung contacted him indicating that the joint venture would like to “re-charge” the Vehicle for further finance. After the plaintiff arranged the Hitachi HPA and received the “surplus monies” from Hitachi, which amounted to HK$171,892, the plaintiff deducted HK$10,000 as the agreed commission and gave the balance to Mr Kung in Mr Li’s presence at the joint venture office.

39. Mr Kung’s evidence was that in early June 2009, there was an outbreak of swine influenza in Hong Kong and all primary and secondary schools were temporarily closed, which severely affected Wah Kee’s business. As a result, Wah Kee experienced cash flow difficulties. Mr Li agreed to refinance the Vehicle to assist. Mr Kung, however, was told by Mr Chan that as the Vehicle had been “charged” to financial institutions several times already, Hitachi required the hirer to be a different party. Mr Li agreed to Hoi Ki being the hirer and signed the relevant documents, including a letter authorising the plaintiff to redeem the Vehicle from Dah Sing under the Dah Sing 2^nd HPA. 

40. On 18 January 2013, the defendant obtained an order in this action for third party discovery against Hitachi for documents in its possession relating to the Hitachi HPA. Amongst the documents discovered by Hitachi was the Hitachi HPA dated 8 July 2009, which was entered into between Hoi Ki as the “hirer”, the plaintiff as the “dealer” and Hitachi as the “owner”.

41. As mentioned above, the defendant alleges in its defence and counterclaim that the Vehicle was purportedly transferred or sold to Hoi Ki, which purchased the same through the Hitachi HPA. The defendant contends that it never consented to such a transfer or sale. In its Reply and Defence to Counterclaim, the plaintiff accepted the existence of such a purported sale or transfer of the Vehicle by the defendant to Hoi Ki for the purpose of the Hitachi HPA. This position was repeated in Mr Chan’s statement. However, at the beginning of his evidence, Mr Chan corrected his statement and said that there was no transfer but rather a nomination arrangement. The defendant remained the registered owner of the Vehicle and the holder of the PSL, but entered into a nomination agreement to the effect I have explained above. The fact that the Hitachi HPA was entered into pursuant to a nomination arrangement was not seriously challenged by Mr Fong. Rather, his case is that whatever the form of the transaction was, Mr Li never consented to it.

42. I find that a nomination arrangement, with which the parties were not unfamiliar (see for instance, KL8081 and NA6072 mentioned above), is more likely than a transfer arrangement. Given that the defendant remained the registered owner of the Vehicle and the holder of the PSL, Hitachi would not have entered into a hire purchase agreement with Hoi Ki in respect of the Vehicle in the absence of a nomination agreement executed by both Hoi Ki as the hirer and the defendant as the registered owner and the holder of the PSL. This would be so even if there were actual contract for the sale and purchase of the Vehicle between the defendant and Hoi Ki, unless and until the name of the registered owner has been changed.

43. Unfortunately, from the discovery provided by Hitachi, it does not appear that Hitachi retained a copy of the nomination agreement (or for that matter, any sale and purchase or transfer agreement) in its records. The nomination agreement should have the signature of Mr Li (or what purported to be Mr Li’s signature) on behalf of the defendant as the registered owner or nominee. It is possible that once the Hitachi HPA was terminated on 10 May 2010, it was no longer necessary for Hitachi to retain a complete set of records of the transaction. Neither party has sought to subpoena any officers of Hitachi to explain it is no longer in possession of such a document.

44. It is also not in serious dispute between the parties that before entering into the Hitachi HPA, Hitachi would have required a confirmation letter and Form TD 25 signed by the defendant as the registered owner with the date and name of the transferee in blank. Mr Chan and Mr Kung say that Mr Li signed these documents, which is denied by Mr Li.

45. From Hitachi’s discovery, Hitachi again does not appear to have retained copies of these documents. In cross-examination, Mr Chan accepted that, upon the termination of the Hitachi HPA on 10 May 2010, Hitachi released to the plaintiff the original copy of the signed Form TD 25 stamped “cancelled” together with the Vehicle’s registration documents. However, Mr Chan said he did not a copy of the document at the time as there was no longer any use for it. He also did not retain any of copies of the documents submitted by the plaintiff to Hitachi in relation to the Hitachi HPA.

46. I should note here that the court was fairly unimpressed by the manner in which Mr Chan conducted the plaintiff’s business. It appears that Mr Chan retained very little by way of records or documentation for the transactions handled by the plaintiff, notwithstanding the sums involved were not insubstantial. Mr Chan told the court that the plaintiff was a small company and did not have the resources to maintain such records. That is hardly a reason. It is difficult to imagine how the plaintiff could, for instance, properly comply with its obligations to keep proper accounts under the Companies Ordinance (Cap 622). That said, I do not believe that Mr Chan has deliberately destroyed or concealed any records, as suggested by Mr Fong.

47. There is one document before the court, however, that is signed by the defendant which evidences the defendant’s consent to the Hitachi HPA, and that is a letter of authorisation dated 8 July 2009 authorising the plaintiff to settle the account with Dah Sing under Dah Sing 2^nd HPA. The only conceivable reason for the letter was to enable the plaintiff to discharge the Dah Sing 2^nd HPA and to apply for the Hitachi HPA in its place. The document bears what appears on its face to be Mr Li’s signature and the chop of the defendant. The defendant denies having signed the document. No expert evidence has been adduced by either of the parties as to authenticity of the signature and the chop.

48. It is ultimately a question of fact, having regard to all of the evidence and the balance of probabilities, whether the defendant, or more particularly, Mr Li, had consented to the Hitachi HPA by inter alia signing the authorisation letter, the nomination agreement, confirmation letter and Form TD 25, or whether Mr Li’s signature on such documents were forged.

49. It is well established that serious allegations of forgery must be proved by evidence of a commensurate cogency: Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at 355H.  As Ribeiro PJ explained in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at 440G-I:

“The majority in the House of Lords in Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 held that the civil standard requiring proof on a balance of probabilities continues to apply where, in civil proceedings, an allegation is made of criminal (or similarly serious) misconduct, but … such standard is to be applied flexibly, factoring in the inherently greater improbability of serious misconduct as compared with lesser forms of misconduct, and therefore requiring the person bearing the burden of proving the allegation to prove it with evidence of a commensurate cogency.”

50. Where the Court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence:

“…any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.”

(Nina Kung v Wong Din Shin (supra) at 441I-J and see 443A-F)

51. Having considered the evidence and examined the contemporaneous materials, for the reasons below, I find that it was more probable than not that the defendant consented to the Hitachi HPA and Mr Li signed the relevant documents on behalf of the defendant. It follows that I reject the defendant’s allegation that there has been any forgery of such documents.

52. It is the defendant’s pleaded case that Mr Li discovered the existence of the Hitachi HPA in July or August 2009, and that upon discovery of the “misconduct by the plaintiff and/or Mr Kung”, Mr Li “repeatedly negotiated with Mr Chan (for the plaintiff) and Mr Kung on all possible solutions to rectify such adverse situation without prejudice to the defendant’s rights to seek relief and/or remedies by litigation.”

53. In his witness statement, Mr Li said he made numerous protests to Mr Kung and Mr Chan concerning the matter, and in the end, Mr Li gave him an undated cheque of HK$500,000 as collateral, and agreed to redeem the Vehicle from Hitachi. However, this did not happen, and therefore, in or around January and February 2010, he deposited the cheque with the date of 1 February 2010 filled in, but the cheque was dishonoured.

54. The purpose of the HK$500,000 cheque, however, is nebulous. In cross-examination, Mr Li explained that he had lent Mr Kung two cars, and when he discovered that the two cars had been mortgaged, he pursued Mr Kung, and Mr Kung wrote two cheques of HK$500,000 to delay him in reporting the matter to the police (although he accepted that Mr Kung never asked him not to make any report to the police). Mr Li also accepted that his wife was ill at the time, and the cheques were to allay his wife.

55. Mr Kung’s explanation, on the other hand, was that one evening Mr Li showed him a recording of Mr Li’s wife, who was ill at the time, crying. He therefore asked Mr Kung to sign two undated cheques for HK$500,000 (one relating to the Vehicle and the other relating to EW9289) as well as a contract whereby Hoi Ki purportedly agreed to sell KL 8081 registered to Hoi Ki for the sum of HK$500,000, for the purpose of allaying his wife. Mr Kung agreed to do so on the understanding that the cheques were merely for the purpose of Mr Li showing his wife and not for presentation.

56. Given the multiplicity of the dealings and disputes between Mr Li and Mr Kung, in respect of which the court has a far from complete picture, the court is unable to come to any conclusions as to the purpose of the HK$500,000 cheque or for that matter the contract for the sale and purchase of KL8081, neither of which are pleaded issues in this case. It is sufficient for me to say here that, having heard the evidence of Mr Kung and Mr Li, it is at least unclear whether the cheque was given to Mr Li for the reasons and in the circumstances asserted by Mr Li.

57. In my view, an almost insuperable argument against the defendant’s case is that, notwithstanding Mr Li’s alleged discovery that someone had forged his signature and entered into a hire purchase agreement without his knowledge and consent, he never made any inquiries with or complaint to Hitachi at the time. Given the serious nature of the matter and the importance of the Vehicle to the defendant’s business, I find it implausible that no such inquiries or complaint was made to protect the defendant’s interests or to guard against any liability to Hitachi.

58. Not only did the defendant not make any complaint to Hitachi, but in the second recorded telephone conversation between the defendant and Mr Chan of Hitachi on 7 May 2010, Mr Li made no mention at all that the defendant had not consented to the Hitachi HPA, or that someone may have forged his signature on the documents. This is all the more remarkable given that Hitachi had by then seized the Vehicle from the defendant due to default in paying hire instalments under the Hitachi HPA. The most obvious way to prevent or at least delay Hitachi’s enforcement of the Hitachi HPA and the sale of the Vehicle would have been to inform Hitachi that he never consented to the Hitachi HPA and that there had been forgery in the documentation. To the contrary, it is clear from the conversation that Mr Li recognised the existence of the Hitachi HPA and Hitachi’s right to seize the Vehicle.

59. Given that this conversation was being covertly recorded by Mr Li, undoubtedly for the purpose of putting matters on record, it makes little sense that Mr Li chose not to complain that the defendant never consented to the Hitachi HPA and to deny any liability under the Hitachi HPA, or at least to ask Hitachi to investigate the matter. Mr Li was, not surprisingly, unable to give any sensible explanation for this failure on cross-examination.

60. The defendant’s assertion in its pleadings that Mr Chan had threatened Mr Li that Mr Kung “had already destroyed all documentary evidence on all transactions” relating to the sale of the Vehicle to Hoi Ki, and therefore, “it was useless for Mr Li… to make any complaint to Hitachi, Dah Sing and/or [the] police” (as explained above, I do not believe that to be a fair interpretation of what was said by Mr Chan in the recorded conversation on 7 May 2010) does not, in any event, make any sense. If Mr Li genuinely believed such a threat to be true, it would be all the more for him to raise the matter with Hitachi as quickly as possible and to put the matter on record in that conversation. 

61. Finally, if Mr Li genuinely believed that Mr Chan was complicit in forging the documents concerning the Hitachi HPA, it is difficult to imagine why he would still have been willing to deal with the plaintiff and to sign the Written Agreement. I shall address below the allegations concerning the duress, undue influence and misrepresentation further below.

62. I should mention, out of completeness, that Mr Li said in his evidence that he made a complaint to the police in March 2010 concerning the Hitachi HPA, but as he did not produce sufficient evidence, the police did not conduct any serious investigation and nothing happened. Eventually, he went to seek legal advice, and in 2012, the defendant’s lawyers filed another report with the police, who then indicated that they would continue to investigate. There is no record of the details of Mr Chan’s complaint to the police in March 2010, and I have considerable doubt as to whether it related to the Hitachi HPA as opposed to the multitude of other disputes that Mr Li had with Mr Kung (which formed also the subject matter of the subsequent report to the police in 2012). In any event, I do not think that this provides an explanation for Mr Li’s failure to raise the matter to Hitachi, especially when he had a clear and obvious opportunity to do so in his conversation with Mr Chan of Hitachi.

63. I therefore reject the defendant’s claim that the Hitachi HPA was entered into without its consent. For the avoidance of doubt, I also find that the plaintiff had accounted for the surplus monies arising out of the refinancing, less the plaintiff’s commission of HK$10,000, to Mr Kung with Mr Li’s consent. I should make clear, however, that I have made no finding in relation to the respective obligations (if any) between Mr Li and Mr Kung or their respective companies in relation to the Hitachi HPA, which are not the subject of this action.

The SPA

64. The defendant does not deny signing the Written Agreement on 11 May 2010. However, the defendant contends that the agreement should be vitiated on the grounds of duress, undue influence, misrepresentation and ex turpi causa.

65. I should mention that there is a dispute in the evidence as to the circumstances in which the document was signed. Mr Chan’s evidence was that it was signed at the plaintiff’s parking lot at West Kowloon Centre, where he and Mr Li agreed to meet so that Mr Li could retrieve some of his personal belongings from the Vehicle. Mr Chan had retrieved the Vehicle from Hitachi’s parking lot on the previous day after discharging the Hitachi HPA. Mr Li’s evidence, however, was that Mr Chan brought the Written Agreement to a meeting at a McDonald’s restaurant downstairs from Mr Li’s home and the document was signed there. Mr Chan accepts that he did meet Mr Li at the McDonald’s restaurant, not on 11 May 2010 to sign the Written Agreement, but on 30 May 2010 to sign the contract with Golden Harbour and other related documents. I will come back to that later.

66. As to the confirmation letter and the Form TD 25, as mentioned above, the defendant’s pleaded case is that the documents had been signed in blank for previous past dealings between the defendant and the plaintiff. In cross-examination, the defendant suggested that the documents were for the 1^st Dah Sing HPA. However, it was pointed out to him that at the bottom of Form TD 25 was the printed notation “Rev 11/2007” indicating that the form had been revised on November 2007 and must have been printed after that date. The date of the Dah Sing 1^st HPA was 17 April 2007, and therefore the form could not have been used for that transaction.

67. In any event, given that the defendant did not dispute signing the Written Agreement, I do not see any reason why he would have refused to sign these two documents, which are obviously necessary for the transfer of the PSL and registered ownership of the Vehicle. I therefore find that the defendant did execute those two documents for the purpose of the SPA.

Misrepresentation

68. I have already set out above the particulars of the defendant’s plea of misrepresentation. I repeat it here for convenience:

(1)  On 11 May 2010, the plaintiff made the following representations, which were relied upon by the defendant when it signed the Written Agreement:

(a) “[The Vehicle] and its title deeds were in the custody of Hitachi and would be resold by Hitachi without notice at any time soon”;

(b) “Mr Li and/or the defendant had no control over [the Vehicle] if Hitachi resold [the Vehicle] and any proceeds of such sale would go into the pocket of Kung or Hoi Ki.”

(2)  Both representations were false (and the plaintiff knew them to be false):

(a) “As the plaintiff and/or Hoi Ki had redeemed [the Vehicle] and its title deeds on 10 May 201, one day earlier before [the SPA]” and

(b) “As the defendant being the registered owner of [the Vehicle] could exert its right to stop any transfer of the Passenger Service Licence of [the Vehicle].”

69. In my judgment, there is simply no basis for alleging, not to mention fraudulent misrepresentation. The allegations of fraudulent misrepresentation should never have been made.

70. As mentioned above, it is clear from the recorded telephone conversations between Mr Chan and Mr Li that Mr Li was well aware that the title deeds had already been redeemed from Hitachi. Moreover, the fact that the Vehicle had already been redeemed by the time of the Written Agreement was clear on the face of the document.

71. Hoi Ki was the hirer under the Hitachi HPA and was therefore the only party entitled to exercise or to authorise a third party such as the plaintiff to settle the account and to terminate the hire purchase agreement. The defendant, as the registered owner or nominee, had no entitlement to the redemption of the Vehicle or the balance of any proceeds of sale if it were sold by Hitachi. This is the consequence of the nomination agreement and was indeed made clear to Mr Li by Mr Chan of the plaintiff as well as Hitachi in the recorded telephone conversations.

72. As explained above, Hitachi would have required an undated confirmation letter and Form TD 25 with the name of the transferee in blank, both signed by the defendant as the registered owner and holder of the PSL. Hitachi would not have entered into the Hitachi HPA without such documents, which are obviously necessary to enable Hitachi to sell the Vehicle to a third party in the event of default under the Hitachi HPA. There is simply no right on the part of the licence holder to “exert its right to stop any transfer” of the PSL in the event that Hitachi were to exercise its right of sale. These are matters that Mr Li, with his experience in hire purchase agreements, was bound to have been well aware.

Undue Influence and Duress

73. The essence of the law of undue influence is to provide a remedy in cases in which, by the exercise of influence, proved by evidence or presumed, unfair advantage has been taken by another. In cases of actual undue influence, the onus is on the person seeking to avoid the transaction to show that:

(1)  The other party to the transaction had the capacity to influence the complainant;

(2)  The influence was exercised;

(3)  Its exercise was undue; and

(4)  Its exercise brought about the transaction.

See e.g. Bank of Credit and Commerce International SA v Aboody [1990] 1 Q.B. 923 at 967

74. In CIBC Mortgages v Pitt [1994] 1 A.C. 200, Lord Browne-Wilkinson said at 209B:-

“Actual undue influence is a species of fraud. Like all other victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have the transaction set aside as of right. No case decided before Morgan, was cited .... in which the transaction proved to have been obtained by the actual undue influence has been upheld nor is there any case in which a court has even considered whether the transaction was, or was not, advantageous. A man guilty of fraud is no more entitled to argue that the transaction was beneficial to the person defrauded than is a man who has procured the transaction by misrepresentation. The effect of the wrongdoer's conduct is to prevent the wronged party from bringing a free will and properly informed mind to bear on the proposed transaction which accordingly must be set aside in equity as a matter of justice.”

75. Again, I repeat the particulars of the defendant’s plea of undue influence here for convenience:

(1)  The plaintiff had the capacity to influence Mr Li as:

(a)  Mr Chan had “a very close connection with many highly-ranked officers of many financial institutes [sic] and Mr Chan repeatedly told Mr Li that only Mr Chan and Mr Kung as the representative of the plaintiff and the hirer under the [Hitachi HPA] respectively, but no other, were able to redeem title deeds of [the Vehicle]”;

(b)  “Mr Li, aged 61 at the time of entering into the [SPA] and of Form 2 education, was particularly vulnerable at the time when [the Vehicle] was seized by Hitachi on 5 May 2010.”

(2)  Mr Chan exerted influence on Mr Li to enter into the SPA by “repeatedly coercing Mr Li (for the defendant) to sign [the SPA] in great haste even [though] there was a better offer in the sum of HK$870,000 from a third party at the material time.”

(3)  The exercise of influence by Mr Chan was undue as:

(a)   “Mr Chan (for the plaintiff) threatened Mr Li that he would receive nothing, if Mr Li did not agree to sell [the Vehicle] to the plaintiff”;

(b)   “Mr Chan (for the plaintiff) on 11th May 2010 threatened Mr Li that Hitachi would sell [the Vehicle] without further notice, and Mr Chan knew it was false as [the Vehicle] had been redeemed from Hitachi on 10 May 2010”.

76. The allegation of undue influence does not get off the ground.

77. First, there is no basis to suggest that Mr Chan had any capacity to influence Mr Li. There is nothing to suggest that the parties had ever conducted business with each other otherwise than at arm’s length. In any event, it is clear from the manner in which Mr Li gave his evidence that he is an intelligent man who is well experienced in his area of business, which included financing the purchase of buses by way of hire purchase. He demonstrated a strong personality and conviction in the manner in which he dealt with questions on cross-examination, and did not strike me as someone who could be easily influenced by others. At the time, Mr Li was sufficiently astute to be recording the conversations between himself and Mr Chan leading up to the SPA, purportedly for the reason that he was suspicious of Mr Chan and wished to keep a record to protect his interests. Mr Li had ample opportunity to seek legal or other professional advice, if he had not in fact done so.

78. As explained above, Mr Li well knew that Hoi Ki was the only party entitled to exercise or to authorise a third party such as the plaintiff to settle the account and to terminate the hire purchase agreement. This had nothing to do with whether Mr Chan had connections with officers of Hitachi. The defendant, as the nominee, had no entitlement under the Hitachi HPA to the redemption of the Vehicle or any of its sale proceeds if the Vehicle were sold by Hitachi.

79. In cross-examination, Mr Li accepted that he was aware as a matter of “common sense” that if the vehicle were sold by the financial institution in such a situation, any balance (being the difference between the outstanding hire instalments and the sale price of the vehicle) would be payable to the hirer rather than the registered owner or nominee. As mentioned above, the defendant was the hirer in respect of two vehicles registered to Hoi Ki, i.e. KL8081 and NA6072. At the defendant’s request, Dah Sing and Hitachi respectively terminated the hire purchase agreements and seized the vehicles. The vehicles were then sold and the proceeds paid to the defendant as the hirer.

80. It is true that if the defendant did not agree to sell the Vehicle to the plaintiff, it would have received nothing from Hitachi, and would have been left only with a potential claim against Hoi Ki pursuant to whatever arrangement the two of them may have had between themselves. Had the plaintiff not discharged the Hitachi HPA with Hoi Ki’s assistance and consent, Hitachi would undoubtedly have sold the Vehicle and paid the surplus proceeds (if any) to Hoi Ki under the terms of the Hitachi HPA. This was nothing more than the legal consequence of the nomination agreement and the Hitachi HPA. This was also made clear to Mr Li by Mr Chan of Hitachi in the second recorded telephone conversation and which Mr Li accepted. There is simply no question of the defendant being prevented from bringing a free will and properly informed mind to bear on the transaction.

81. It is clear from the first and fourth recorded conversations that, given the breakdown in relationship between Mr Li and Mr Kung, Mr Kung would not have been willing to assist Mr Li to recover the Vehicle or its sales proceeds from Hitachi. Mr Li could not have sold the Vehicle to anyone else without Mr Kung’s consent, which Mr Chan was able to procure. In this sense, the SPA was to the clear advantage of the defendant in that he was at least able to recover a substantial sum for the sale of the Vehicle. There was no unfair advantage having been taken against the defendant.

82. I should add that the price in the SPA of HK$810,000 was in fact less than 10% below the open market value of the Vehicle at the time which, according to the report of the single joint expert in this action, was in the range of HK$850,000 to HK$900,000. However, as explained by Mr Chan and I agree, a discount would have to be factored in since the Vehicle had been repossessed by Hitachi at the time.

83. In relation to economic duress, the following passage from the judgment of Stock JA (as he then was) in Esquire (Electronics) Ltd v The Hongkong and Shanghai Banking Corporation & Anor [2007] HKLRD 493 at §§153 to 155 usefully summarises the position:

“The reason that the law enables the weaker party to avoid a contract entered into under duress is that:

“… his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind. It is a rationale similar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress.”

per Lord Diplock in Universe Tankships Inc of Monrovia v International Transport Workers Federation and others [1983] AC 366 at 384.

The key to proving economic duress is proof of the illegitimacy of the suggested pressure. Much commercial activity necessarily involves pressure, often considerable and sometimes overwhelming, exercised by parties who find themselves in powerful bargaining positions. But that of itself is not illegitimate. It was suggested by McHugh JA, as he then was, in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 46 that:

“Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, would not necessarily constitute economic duress.”

84. No particulars have been pleaded in support of the plea that the SPA was entered under duress. It is assumed that the defendant relies upon similar allegations to the plea of undue influence. For the same reasons above, there is nothing that could be said to have amounted to illegitimate pressure on the defendant to enter into the SPA. Whilst there might have been some pressure on Mr Li at the time to conclude a deal before Hitachi sold the Vehicle and Mr Chan may have pressed for a favourable bargain, such matters, whether separately or together, could not amount to duress.

Ex Turpi Causa

85. The allegation of ex turpi causa is based upon the plaintiff’s alleged misconduct in relation to the Dah Sing Surplus Monies and the Hitachi HPA and the alleged misrepresentation, undue influence and duress leading to the SPA. In the light of the court’s conclusions above, it is unnecessary for me to consider this ground any further.

Conclusion on SPA

86. As each of the alleged vitiating grounds has not been made out, I find that the SPA was valid and binding upon the defendant.

87. However, the defendant claims that even if the SPA were valid, the plaintiff was in repudiatory breach of the same by failing or refusing to make full payment of the purchase price. This failure was said to arise from (1) the fact that the payment for the discharge of the Hitachi HPA should not be regarded as part payment of the purchase price since the defendant was not responsible for the Hitachi HPA; and (2) the defendant should not have to bear the Miscellaneous Charges.

88. In the light of my findings in relation to the Hitachi HPA, the first complaint falls away. It is in any event clear on the face of the Written Agreement that the price of HK$810,000 included the payment of HK$570,000 advanced by the plaintiff to redeem the Vehicle.

89. As for the Miscellaneous Charges, the plaintiff’s case is that the defendant consented to them on 11 May 2010, as evidenced by the manuscript calculations setting out the Miscellaneous Charges on the back of the transaction advice for the issue of the cashier’s order, the front of which was signed by the defendant.

90. It is difficult to see, however, what is the contractual basis for the Miscellaneous Charges. On the plaintiff’s own pleaded case, the price of the Vehicle had been agreed at HK$810,000, which was reflected in the Written Agreement. It is pleaded that the plaintiff paid inter alia the Miscellaneous Charges “pursuant” to the SPA. There is no mention, however, of any entitlement on the part of the plaintiff to make any deductions from the price for its expenses. I do not see any reason why the defendant should be liable to bear those expenses. Even if the defendant did not object to them at the time, on the plaintiff’s case, a binding contract had already been concluded, and the plaintiff provided no additional consideration. In the circumstances, I find that that the plaintiff is liable to pay the defendant the sum of HK$8,564 as the balance of the purchase price under the SPA.

91. Obviously, the failure to pay such an amount is not sufficient to amount to a repudiation of the SPA. There was therefore no termination of the SPA.

92. On the issue of whether the sum of HK$13,000 was paid in cash to Mr Li on 11 May 2010, no complaint was raised by the defendant that any amount was outstanding under the SPA until the plaintiff commenced these proceedings. Mr Li would have pursued Mr Chan for this sum much earlier had it in fact been unpaid, given that Mr Li was keen to get as much as he could for the Vehicle. I therefore accept Mr Chan’s evidence that the sum was paid to Mr Li on 11 May 2010.

The Golden Harbour Contract

93. There is no dispute that the plaintiff took physical possession of the Vehicle from Hitachi on 10 May 2010. However, the Vehicle remained registered in the name of the defendant, and it is the defendant’s failure to consent to the transfer of the PSL that is the subject of the plaintiff’s claim in this action.

94. As mentioned above, it is the plaintiff’s pleaded case that on 29 May 2010, the plaintiff entered into an agreement with Golden Harbour to sell the Vehicle to Golden Harbour for the sum of HK$910,000. Further, “in order to save cost and time, upon the request of Mr Chan of the plaintiff, Mr Li for the defendant agreed to execute and did execute on behalf of the defendant a notice of confirmation confirming the defendant’s agreement to transfer all its title in the Vehicle directly to Golden Harbour”.

95. In fact, Mr Chan’s evidence was that on 30 May 2010, he met Mr Li at the McDonald’s restaurant downstairs from Mr Li’s home and brought a number of documents for Mr Li to sign, namely, a confirmation letter and Form TD 25 with the name of the transferee in blank, a nomination form (to enable Golden Harbour to apply for hire purchase financing whilst the existing PSL, which had not yet expired, was still registered in the name of the defendant), and a Chinese sale and purchase agreement dated 5 June 2010 whereby the defendant agreed to sell the Vehicle to Golden Harbour for the sum of HK$100,000 with delivery to take place before 5 June 2010 (the “Golden Harbour Contract”). Mr Li did not have the defendant’s chop with him and so he took the pile of documents upstairs to his home and returned a few minutes later with them chopped and signed.

96. In late 2010 and early 2011, Golden Harbour applied to the Transport Department for the transfer of the registered ownership of the Vehicle and the issue of a PSL and submitted inter alia the Golden Harbour Contract and a confirmation letter (with its own name as the transferee filled in). However, on 6 May 2011, the defendant wrote to the Transport Department denying that it had sold the Vehicle to Golden Harbour and refused to consent to the transfer. The plaintiff then submitted to the Transport Department inter alia the Written Agreement and a confirmation letter (with its own name as the transferee filled in) and applied to have the Vehicle transferred to it instead. However, as already mentioned above, the defendant, by a letter dated 23 August 2011 to the Transfer Department, refused to confirm the transfer of ownership.

97. On their face, the Golden Harbour Contract and the confirmation letter submitted by Golden Harbour to the Transport Department appear to be signed by Mr Li. Mr Li’s evidence, however, is that he never signed them, and his signature was forged.

98. Golden Harbour is not a party and has not been called upon to give any evidence in these proceedings. Other than the Golden Harbour Contract and the documents submitted by Golden Harbour to the Transport Department, little is known of Golden Harbour or its stance in relation to the Golden Harbour Contract or these proceedings. In such circumstances, I am reluctant to make any findings on the validity on the Golden Harbour Contract, even though such findings may not be binding on Golden Harbour. Indeed, it is not necessary for me to do so. In this action, the plaintiff seeks, as against the defendant, specific performance of the SPA and not the Golden Harbour Contract. As I shall explain below, however, the plaintiff’s own case on the Golden Harbour Contract is nonetheless relevant to the relief (if any) to which the plaintiff is entitled in this action.

99. In cross-examination, Mr Chan accepted that the plaintiff received HK$910,000 from Golden Harbour on 30 May 2010 for the sale of the Vehicle. Golden Harbour then took possession and operated the Vehicle until the PSL expired on 8 June 2011, Golden Harbour not having been able to renew the same due to the defendant’s objections. There is no evidence, however, that Golden Harbour has made or has threatened to make any claim against the plaintiff for breach of the contract between the plaintiff and Golden Harbour. The burden is on the plaintiff to prove its loss. On the contrary, Mr Chan accepted that the plaintiff had made a profit of from the sale and had not suffered (or at least not yet suffered) any loss.

100. No relief for indemnity against any claim for damages by Golden Harbour has been sought by the plaintiff in this action. It may be questionable, however, whether the plaintiff is at risk of any claim from Golden Harbour. The effect of the Golden Harbour Contract (assuming for the moment that, as contended by the plaintiff, the contract was duly signed by the defendant), was that Golden Harbour was substituted as the purchaser of the Vehicle from the defendant in place of the plaintiff. Such an arrangement was, of course, not only consented to but procured by the plaintiff itself. Indeed, in his evidence, Mr Chan said he understood the plaintiff to have acted as the “middleman” in the sale of the Vehicle to Golden Harbour. Indeed, it is unclear whether the defendant’s breach of contract was its refusal to consent to the transfer of the PSL to Golden Harbour (as it did in May 2011) or its subsequent refusal to consent to the transfer to Golden Harbour (as it did in August 2011).

101. Mr Fong submits that Golden Harbour Contract amounted effectively to a novation of the SPA between the plaintiff, the defendant and Golden Harbour.  This is disputed by Mr Tsui. Given the limited evidence before the court and the absence of Golden Harbour in these proceedings, it is neither necessary nor appropriate for the court to express any view on these arguments.

102. Mr Chan’s contention that the Golden Harbour Contract was solely for the purpose of saving time and costs and for submission to the Transport Department may or may not be true. Mr Tsui, however, does not (nor can he seriously) contend that the Golden Harbour Agreement is a sham. In any event, this is not a matter I can decide in this action without having heard Golden Harbour.

103. Mr Chan also suggested in cross-examination that the plaintiff has brought the present action to assist Golden Harbour. However, as a matter of law, the plaintiff can only bring this action in its own right and not on behalf of Golden Harbour. If Golden Harbour has suffered a loss due to a breach of the Golden Harbour Contract with the defendant, it is for it to bring a claim against the defendant.

104. In my judgment, specific performance would be inappropriate in this case:

(1)  First, the subject matter of the SPA is a bus, although it is true of course that that includes the PSL attached to the bus. Nonetheless, it is not seriously dispute by the parties that there is an available market for such buses. As mentioned above, the market value of the Vehicle at the time of the SPA was in the range of HK$850,000 to HK$900,000, which corresponds to the price of HK$910,000 at which Golden Harbour purchased the Vehicle some two weeks later. In my judgment, there is nothing unique about the Vehicle as compared to other similar buses on the market. The plaintiff is a car dealer, and the plaintiff acquired the bus in the course of trade and for resale. In such circumstances, damages are an adequate remedy for any breach of the SPA. There is also nothing to suggest that it would be unjust if the plaintiff’s remedy were confined to damages.

See e.g. Chitty on Contracts, 31^st Edition, Vol. 1 at §§27-005, 27-014-015

(2)  More importantly, however, in the light of the Golden Harbour Contract, even if specific performance were an appropriate remedy, it seems to me at least arguable that the proper party to seek specific performance is not the defendant, but Golden Harbour, who (on the plaintiff’s own evidence) has now been substituted as the purchaser of the Vehicle. Ordering specific performance in favour of the defendant would potentially impact upon the rights of Golden Harbour, the stance of which is unknown. In such circumstances, it would not be right to order specific performance of the SPA in favour of the defendant.

105. For the same reason, it would not be appropriate for the court to grant the declaration sought by the plaintiff that the defendant’s legal title, rights, interest and benefit of and in the Vehicle has been transferred to and/or vested in the Plaintiff.

Conclusion

106. For the reasons above, the plaintiff’s claims for declaratory relief, damages and specific performance are dismissed.

107. I appreciate that this leaves matters in an unsatisfactory state, including in particular the fact that there is no determination as to the present ownership of the Vehicle as between the plaintiff and Golden Harbour. However, I regret that that is a consequence of the manner in which the claim has been brought and the fact that Golden Harbour was not made a party to this action. There may well have been reasons for not doing so, which the court will not speculate.

108. The defendant shall be entitled to judgment in the sum of HK$8,564 by counterclaim. All of the other counterclaims are dismissed.

109. In the light of the result that I have reached, I think the appropriate order is that there be no orders as to costs of the action. I make an order nisi to that effect.

110. Last but not least, I thank counsel for their assistance in this interesting case.