LIM YI SHENN v. WONG YUEN YEE AND OTHERS

CACV 55/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 55 OF 2015

(ON APPEAL FROM HCA 1323/2010)

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J U D G M E N T

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Hon G Lam J (giving the Judgment of the Court):

I. INTRODUCTION

1.  This is the plaintiff’s appeal from the judgment of Deputy  Judge Wilson Chan (“the Judge”), after trial of the action, dismissing the plaintiff’s claims against all three defendants.

2.  The plaintiff is an investor resident in Singapore though he travelled frequently to Hong Kong for business.  His claims in the action arose out of an investment in the shares of the 3^rd defendant, a company incorporated in Bermuda whose shares were listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.  The 3^rd defendant was a holding company of various subsidiaries through which business was carried on (collectively, “the Group”).  The 1^st and 2^nd defendants were at the material times both directors and controlling shareholders, and also respectively the Chairman and Chief Executive Officer, of the 3^rd defendant.

3.  The plaintiff alleged that various representations were made and warranties given to him by the defendants, and that there was an oral “Investment Agreement” between him and the defendants, as a result of which he purchased shares in the 3^rd defendant.  He claimed in addition that, out of the money he invested, the defendants agreed to hold HK$10 million on trust for the specific purpose of enabling the 3^rd defendant to invest it in a company called Luson Biotechnology Development Limited (“LBD”). 

4.  The plaintiff contended that the representations turned out to be false and the warranties and the Investment Agreement were breached by the defendants.  They also failed to invest the sum of HK$10 million in LBD or to return the money to him.  He claimed damages for the loss suffered and repayment of HK$10 million.

5.  The defendants denied there were any representations, warranties or Investment Agreement as alleged.  They also denied that there was any agreement to hold the HK$10 million on trust for the purpose of investing in LBD.

II.  THE FACTS IN OUTLINE

6.  The 3^rd defendant’s original core business was in the provision of software application solutions including home intelligent automated system.  In 2007, planning to enter into the hotel business in Mainland China, it commissioned a firm of financial advisers, Cushman & Wakefield Capital Asia Limited (“Cushman & Wakefield”), to prepare a document called “Group Valuation Materials” for investor relationship purposes and for the 3^rd defendant’s strategic planning. 

7.  Since 2007 the Group had taken various steps in the direction of developing a hotel management business in the Mainland.  Thus it was announced that in October 2007, the 3^rd defendant had entered into a joint venture agreement with Swiss-Belhotel International Limited for the management of hotels and with a view to setting up a hotel-training school.  In September and October 2007, the Group entered into contracts for the management of 9 hotels located in Kaiping, Dongguan, Shaoguan and Zhaoqing in Guangdong Province.  In November 2007, it was announced that the Group had entered into agreements for the acquisition of 2 hotels, namely, Xingdu Hotel[1] in Kaiping, Guangdong Province, and Changlin Hotel in Jilin City, Jilin Province.

8.  At the request of the 3^rd defendant in early 2008, an updated version of the Group Valuation Materials was produced by Cushman & Wakefield, dated January 2008, for the purpose of, inter alia, introducing the budget hotel projects to potential investors.  It referred to, inter alia, the steps taken by the Group towards expansion into the hotel business as referred to in the preceding paragraph.

9.  In February 2008 the Group announced that it had entered into an agreement to acquire another hotel, namely, the Qiceng Hotel, which was also located in Kaiping.  This acquisition post-dated and was not mentioned in the Group Valuation Materials.

10.  For the purpose of raising funds for the expansion of the Group into new businesses, in 2007 and 2008 the 1^st and 2^nd defendants, together with Paul Law (representative of a firm of business advisers of the 3^rd defendant) met with many potential investors.

11.  One of these potential investors was the plaintiff, who was introduced to the defendants by their mutual friend, Michael Ong, in around February 2008.  Their first meeting took place over lunch in a restaurant in Wan Chai, Hong Kong.  There were apparently a few meetings following that introduction, the last of which, prior to the plaintiff’s acquisition of shares in June 2008, was on 10 April 2008. 

12.  On that date the 1^st and 2^nd defendants, Michael Ong and others had a meeting with the plaintiff in the 3^rd defendant’s office.  A presentation using the Group Valuation Materials was made to the plaintiff.  Prior to this meeting a copy of the document (without the appendices) had been sent by Michael Ong by email to the plaintiff on 6 April 2008. 

13.  In the action below the plaintiff said that various representations and promises were made to him by the defendants during their meetings, especially the one held on 10 April 2008, which we shall describe below with reference to the plaintiff’s pleaded case and the evidence at trial.

14.  Among other things, the plaintiff said that they discussed an investment by the 3^rd defendant in LBD.  LBD was a start-up company in which Michael Ong was centrally involved and for which he was looking for investment.  The intention was that LBD would engage in the business of the development, manufacture and sale of traditional Chinese medicine.  The plaintiff claimed that the 1^st and 2^nd defendants encouraged him to invest in the 3^rd defendant which would in turn invest in LBD, and that they told him that, of the money invested by him, they would hold HK$10 million for the specific purpose of investing in LBD.

15.  In around May 2008, the 3^rd defendant engaged two placing agents, namely, President Securities (Hong Kong) Limited (“President”) and Emperor Securities Limited (“Emperor”), for the purpose of placing shares to raise funds.  The method chosen was “top-up placing”, which meant that the 1^st and 2^nd defendants would first sell their own shares in the 3^rd defendant to the placees and later subscribe for an equivalent number of new shares from the 3^rd defendant.  The plan was to place 180 million shares to independent placees, comprising 70 million shares from the 1^st defendant and 110 million shares from the 2^nd defendant as vendors.

16.  In late May or early June 2008, President and Emperor approached various potential investors, including certain names provided by the defendants, to secure their agreement to acquire shares in the 3^rd defendant.  Those who accepted entered into formal agreements on 11 June 2008 with President and Emperor to take part in the placement at HK$0.37 per share, which was the closing price of the shares as traded on the exchange on that day.

17.  The agreement with the plaintiff took the form of a letter headed “Form of Placement Letter” issued by President to the plaintiff, which referred to a contract for the plaintiff to subscribe for 54 million shares in the 3^rd defendant.  The plaintiff signed an acknowledgment confirming his agreement to purchase shares on the terms and conditions recorded in the letter. 

18.  Pursuant to this agreement the plaintiff paid the price of HK$19,980,000 for 54 million shares in the 3^rd defendant at HK$0.37 each.  His total outlay including stamp duty, transaction levy, trading fee and brokerage was HK$20,001,778.20.

19.  It eventually transpired that only 151 million shares were placed in total in June 2008, instead of 180 million shares.  The placements were completed on 19 June 2008.  There were 10 placees, including the plaintiff, who purchased a total of 70 million shares through President, and 6 placees, including one Ms Chui Man Si (“Ms Chui”), who purchased 81 million shares through Emperor.

20.  The Securities and Futures Commission (“the Commission”) subsequently discovered, however, that Ms Chui was a friend of the 1^st defendant and an authorised signatory for a securities trading account held with Emperor by a company[2] owned by, among others, the 1^st and 2^nd defendants which was also a related shareholder in the 3^rd defendant.  The Commission concluded that Ms Chui, and hence the other 5 placees via Emperor who were procured by her, were not independent of the defendants.  Accordingly, by a letter dated 8 July 2008, the Commission refused to grant a waiver from the requirement of a general offer in relation to the intended subsequent subscription of shares by the 1^st and 2^nd defendants.  As a result the 1^st and 2^nd defendants did not subscribe for an equivalent number of new shares as intended, but agreed later to subscribe for 107,704,193 shares, being the highest number of shares they could subscribe for without triggering the obligation to make a general offer.  This subscription, at the same price of HK$0.37 per share, was completed on 29 August 2008 after approval was given by independent shareholders at a special general meeting.

21.  As a consequence, of the entire proceeds of the share purchases by the investors in the sum of HK$55.87 million (151 million shares at HK$0.37 per share), only approximately HK$39.85 million (107,704,193 shares at HK$0.37 per share) was injected into the 3^rd defendant. The remainder of the proceeds, a little over HK$16 million, was eventually released to the 1^st and 2^nd defendants as vendors of shares whilst their stake in the company (held together with related persons) dropped from 36.05% before the placement to 29.90% afterwards.

22.  After the investment, the plaintiff had become a significant shareholder in the 3^rd defendant and had further contact with the defendants regarding the Group’s affairs.  On 19 August 2008 a revised version of the Group Valuation Materials, called the “Information Memorandum”, was provided by the defendants to him.  A further updated version was sent to the plaintiff in March 2009.

23.  From September 2008 onwards the 3^rd defendant had undertaken further placement of shares at prices much below HK$0.37 or HK$0.30. 

24.  By the end of the first quarter of 2009 it had become clear to the plaintiff that his investment in the 3^rd defendant was not a success.  The share price had plummeted.  In around April 2009 he began to ask the defendants for compensation.  He instructed solicitors in Hong Kong to issue a letter of demand on 4 May 2009, and a further demand annexing a draft statement of claim on 29 May 2009.  As we shall mention below, the Judge found significant inconsistencies between the plaintiff’s complaints and demands made at that time and those made at trial.

25.  In addition, from around mid May 2009, the plaintiff took steps to cut his losses by selling his shares in the 3^rd defendant on the market, all of which he eventually disposed of for a total sum of approximately HK$4.14 million (averaging less than HK$0.08 per share), thus incurring a loss of over HK$15 million on this investment. 

26.  Meanwhile the Group’s hotel business had proved to be unsuccessful and it decided to focus on other businesses including gold mining.  In June 2009, the Group announced the cessation of further action on the budget hotel business plan and that it had entered into agreements to dispose of its interests in the Xingdu Hotel and the Qiceng Hotel at a loss.

27.  On 31 August 2010 the writ of summons commencing the action was issued.

III.  THE PLAINTIFF’S PLEADED CLAIMS

28.  The plaintiff’s case at trial was set out in his Re-Amended Statement of Claim.  Claims were made on the basis of breach of contract, negligent misrepresentation at common law and under the Misrepresentation Ordinance (Cap 284), and trust.

29.  For his case in contract, the plaintiff alleged that there was an oral “Investment Agreement” concluded on or about 10 April 2008 whereby he agreed to acquire shares issued by the 3^rd defendant at a price no greater than the market price and would not sell more than 50% of those shares for at least 6 months.  In return, the defendants agreed, so far as relevant, the following:

(1)   The 3^rd defendant would invest into LBD at least HK$10 million of the placement proceeds.

(2)   The 3^rd defendant would implement the investment based on its budget hotel business plan with various achievement milestones.

(3)   The 3^rd defendant would not place or offer for sale or otherwise issue shares at a price below HK$0.30 each within 1 year.

30.  The plaintiff’s claims for misrepresentations and breach of warranties and conditions were not pleaded with clarity.  A raft of matters, some appearing to be promises and some facts, and overlapping with the terms of the Investment Agreement, were indiscriminately pleaded to have been “represented” to the plaintiff or “warranted” or “agreed” by the defendants.  So far as representations are concerned, it appears that the plaintiff contended that the defendants made the following representations to him:[3]

(1)   2 hotels, namely, Xingdu Hotel and Changlin Hotel, had been acquired by the Group at the price of RMB13.5 million and RMB13.4 million respectively.

(2)   The budget hotel business plan would be implemented, which included:

(a)   The hotel management contracts entered into by the 3^rd defendant in relation to hotels in the Mainland would be implemented.

(b)   A gross operating profit of over RMB25 million would be achieved in 2008 and an annual gross revenue of over RMB1.5 billion from the hospitality business would be achieved by 2012.

(c)   A portfolio of 65 hotels would be managed by the end of 2008 and a nationwide budget hotel chain with 225  budget hotels and 27,000 hotel rooms under management would be established within 5 years (ie by 2012).

(3)   The 3^rd defendant would not place or otherwise offer for sale or allow the issue of any shares at a price below HK$0.30 within 1 year of the Investment Agreement.

(4)   The pro-forma valuation per share on a fully diluted basis (taking into account anticipated issues of shares to raise funds) would be HK$3.39 per share by 2012.

(5)   The 3^rd defendant would hold HK$10 million invested by the plaintiff on trust for the purpose of investing in LBD.

(6)   There would be new share issues at around HK$0.60 per share.  Various other independent investors would also subscribe for shares in the 3^rd defendant on the same terms and at the same price as the plaintiff.  The total number of new shares to be issued would be about 200 million.

31.  The matters in the preceding paragraph were also said to have been “agreed” by the defendants and the plaintiff contended they were warranties, terms and conditions of the Investment Agreement in addition to the following:[4]

(1)   The contents of the Group Valuation Materials were true.

(2)   The placement of shares with the plaintiff and other investors would in all respects satisfy the regulatory compliance issues in order to obtain the necessary approval from the Commission and the Stock Exchange.

(3)   The defendants would not act in any way so as to cause an end to the state of circumstances under which the execution of the budget hotel business plan could be implemented.

32.  The plaintiff claimed that the defendants breached the Investment Agreement because:[5]

(1)   Instead of the 3^rd defendant allotting new shares to him, the 1^st defendant sold 54 million shares owned by her to the plaintiff without telling him that would be the mode of placement.

(2)   Because certain placees were not independent of the 1^st and 2^nd defendants, they were released from any obligation to purchase the shares agreed.  This was not disclosed to the plaintiff, so that he proceeded to purchase the shares while others pulled out.

(3)   The 3^rd defendant failed to invest the sum of HK$10 million or any sum in LBD.

(4)   The 3^rd defendant owned Xingdu Hotel and Qiceng Hotel as own-managed hotels, instead of Xingdu Hotel, Changlin Hotel, and Qiceng Hotel.

(5)   The 3^rd defendant only leased 2 lease-managed hotels instead of 9.

(6)   The 3^rd defendant failed to implement the budget hotel business plan and the related fund raising activities.

(7)   The 3^rd defendant disposed of the Xingdu Hotel and Changlin Hotel for RMB4 million and ceased further action on the budget hotel business plan from around June 2009 onwards.

(8)   From around September 2008 onwards the 3^rd defendant undertook various issues or placements of shares at prices below HK$0.30 per share.

33.  These breaches were largely repeated in the statement of claim as matters rendering the defendants’ alleged representations false.

34.  For his claim in trust, the plaintiff contended that the sum of HK$10 million out of the money he invested was held on trust for the specific purpose of investing in LBD, but in the event, as was common ground, the 3^rd defendant never made an investment in LBD or, indeed, in any Chinese medicine business.  The plaintiff further claimed that at a meeting on 14 April 2009, the defendants admitted liability to repay HK$10 million to the plaintiff.  At trial the plaintiff claimed repayment of HK$10 million, on the basis that he would return 27 million shares in the 3^rd defendant or their equivalent value.

IV.  THE JUDGE’S FINDINGS

35.  Apart from the documentary evidence, there was oral evidence at the trial given by the plaintiff himself, and by the 1^st defendant, the 2^nd defendant, and Mr Stanley Lai (responsible person from President).

36.  The Judge found the plaintiff’s case generally unbelievable and inherently improbable having regard to the plaintiff’s inaction after discovery of the matters of which he complained in the proceedings.[6] Serious doubt on the plaintiff’s credibility also arose from the significant factual inconsistencies between the draft statement of claim put forward by his solicitors in correspondence in May 2009 and the Re-Amended Statement of Claim eventually filed in the action.[7]  The Judge regarded the 1^st and 2^nd defendants’ evidence to accord much more with commercial reality.[8]

37.  As regards the claim in misrepresentation based on the contents of the Group Valuation Materials, the Judge, having referred to the plaintiff’s evidence on that matter, held that the document did not contain actionable representations that the plaintiff was entitled to rely upon.  In coming to this conclusion the Judge found and highlighted the following matters:[9]

(1)   The plaintiff was a sophisticated investor with experience of investing in listed companies and businesses in Hong Kong.

(2)   The plaintiff clearly knew from the start that the Group Valuation Materials consisted only of estimates, projections and figures that were said to be “achievable” and “feasible” without importing any definite obligation or promise.  He was aware of the potential weaknesses of and threats to the hospitality business of the 3^rd defendant and ought to have known that such business proposal was based on assumptions.

(3)   The nature of the Group Valuation Materials was for providing potential investors with “a panoramic view” of the 3^rd defendant’s hospitality business.  The meeting at which the Group Valuation Materials was presented was “just for an introduction of the 3^rd defendant’s business plan”.  At all presentations Paul Law told the plaintiff that the business proposal was not intended to be relied upon for acquisition of shares but was just a business plan, and referred to the disclaimer.

(4)   The alleged representations relied upon by the plaintiff were only “business objectives and plans”, “future plans” and “valuation of the Group” which were at most statements of intention and opinion.  There was nothing to prove the defendants did not have such intention and opinion.

(5)   The Group Valuation Materials contained a disclaimer (albeit inserted for the benefit of Cushman & Wakefield) which the plaintiff had read.  The disclaimer stated:

“... If the Company [ie 3^rd defendant] presents any information described herein to any third parties, such persons are expected to make their own investment decisions with respect to the Company without relying on the information contained in this document. ...”

38.  The Judge also specifically found against any representation by the defendants that the 3^rd defendant was aiming to raise funds in the amount of at least HK$100 million by placement of shares at between HK$0.60 and HK$0.80 per share.[10]

39.  On the claim in contract, the Judge rejected as inherently improbable the plaintiff’s allegations that he agreed to a 6-month lock-in period and that the 3^rd defendant agreed not to issue shares at below HK$0.30 per share for 1 year.[11] He rejected the alleged breach of contract arising from the fact that the 54 million shares acquired by the plaintiff were existing shares sold by the 1^st defendant rather than new shares issued by the 3^rd defendant, which he found to be obvious from the placing letter of 11 June 2008.[12]  He rejected the alleged warranty that the Group Valuation Materials was true insofar as that meant all the estimated figures must be attained and achieved.[13]  He also rejected as being contrary to commercial sense the alleged term that the defendants could not act in any way that would cause an end to the implementation of the budget hotel business plan.[14]

40.  As a matter of law, the Judge held that as there was no contractual relationship between them, the plaintiff had no cause of action against the 2^nd defendant under the Misrepresentation Ordinance.[15] Further, the Judge held that, as directors involved in the negotiations on behalf of the 3^rd defendant, the 1^st and 2^nd defendants could not be made personally liable in contract to the plaintiff.[16]

41.  The Judge also held that there was no proper evidence for assessing damages on a contractual basis, ie on the basis of the position the plaintiff would have been in if the Investment Agreement, including the alleged warranties, terms and conditions, had been performed. Accordingly, even if the contractual claim against the 3^rd defendant had been made out, the Judge would only have awarded nominal damages.[17]

42.  As for the claim in trust for HK$10 million, the Judge considered that the issue was a factual one as to whether the 3^rd defendant’s freedom to dispose of the money was excluded by agreement.[18]  In the end he rejected the plaintiff’s allegation and evidence that the defendants agreed to hold HK$10 million on trust as being “contrary to commercial sense” and “plainly inconceivable”.[19]

V.  THE APPEAL

43.  The Notice of Appeal set out a large number of grounds of appeal that run to 21 pages, challenging virtually every aspect of the Judge’s findings and conclusions that was adverse to the plaintiff.  To their credit, Mr Laurence Li and Mr Jacky Lam, who appeared for the plaintiff on this appeal but not below, took a more focussed approach.  Abandoning all other grounds, they confined themselves to contending that the Judge erred in two matters, which are, broadly described, as follows:

(1)   First, counsel submitted that there were statements of fact in the Group Valuation Materials that were false, and that the Judge was wrong to find that the document was only about the future and hence was understood not to be relied upon and therefore not actionable.

(2)   Secondly, it was contended that the Judge was wrong not to find that the defendants made a representation that there would be other independent investors who would commit to invest in the 3^rd defendant on the same terms as the plaintiff.

44.  On this basis, counsel submitted that the plaintiff’s claim for misrepresentation should be held to be established.  They made no attempt to resuscitate the plaintiff’s claims in contract or in trust. We shall deal with the above two matters in turn below.

(A)  The first matter – Group Valuation Materials

45.  Counsel for the plaintiff pointed out that although the Group Valuation Materials contained much that was about future plans and projections, there were nevertheless statements of facts relating to the existing status of the hotel business of the 3^rd defendant.  In particular, they referred to the following two statements:

(1)   that the 3^rd defendant had acquired 2 hotels, namely, Xingdu Hotel and Changlin Hotel in November 2007; and

(2)   that the 3^rd defendant had entered into hotel lease contracts for 9 hotels located in Guangdong Province in September and October 2007.

In addition, reference was made to parts of the document that alluded to “existing” hotels and “existing” number of rooms. It was submitted that the word gave the impression that the hotels were already in operation for business.[20]

46.  Counsel for the plaintiff submitted that, read in context, each of these statements was untrue and did not reflect the reality.  It was said that the first statement was false because the agreement to acquire the Changlin Hotel had lapsed due to non-fulfilment of conditions precedent, and that the second statement was false because of the 9 lease-managed hotels acquired, only 2 had gone into operation at the time and the rest were in various stages of preparation.

47.  Three observations of a more general nature are in order before we deal with the specific representations relied upon.  First, a reading of the Judgment as a whole shows, in our view, that the Judge did not erroneously assume that there were no statements of fact whatsoever in the Group Valuation Materials.  At §29(3) of the Judgment, he pointed out that page 20 of the Group Valuation Materials presented an overview of “what the 3^rd defendant had done”.  What seemed clear to the Judge, however, from the evidence, which he summarised in the rest of §29, is that in fact the plaintiff’s concern at the time as a potential investor was with the target figures contained in the Group Valuation Materials such as the projected RMB1.5 billion in annual gross revenue from the hospitality business by 2012 and valuations of the business which were based on discounted cash flow and terminal values, and whether those figures were “achievable”.  The plaintiff said he understood from the defendants that these figures were “feasible” and “achievable”.  Read in context, when the Judge said in §32 of his Judgment that the Group Valuation Materials “only consisted of estimates, projections and figures which are only ‘achievable’ and ‘feasible’”, he was focussing on the information in the Group Valuation Materials that, as it seemed to the Judge on the evidence, mattered to the plaintiff.

48.  Secondly, the plaintiff did not, either at trial or on this appeal, advance a case that the figures, estimates and valuations contained in the Group Valuation Materials were not achievable or feasible because of the two matters now focussed upon.  Nor did the plaintiff contend that the projections were falsified or rendered misleading by the alleged misstatements of fact now relied on.  It was not, for example, contended by the plaintiff – nor was there any evidential basis to do so – that the cash flow models used in the valuation of the Group were unrealistic or unachievable merely because some of the lease-managed hotels contracted for were under renovation and not yet in operation as at April 2008.  In fact it can be seen from the models that the valuations were premised on there being no hotel in operation at all prior to 2008 and a specified number of hotels coming into operation in the course of 2008 and the following years.

49.  The third point, which is connected with the previous one, is that while the plaintiff’s focus on the two matters on this appeal might give the impression that they were pivotal to his investment decision, that was not borne out by the evidence.  In fact, the draft statement of claim provided by the plaintiff to the defendants in May 2009 would suggest that the decision to invest was made by the plaintiff in reliance on the defendants’ alleged promises to invest HK$10 million in LBD and not to place or issue shares at below HK$0.30 per share for a year.  The evidence given by the plaintiff at trial would suggest in contrast that he relied on the projections and valuations in the Group Valuation Materials.  The plaintiff’s explanation of the “glaring inconsistencies” between the draft statement of claim and his case at trial was disbelieved by the Judge as being “wholly implausible”.[21]  There was nothing to show that the plaintiff would not have purchased shares in the 3^rd defendant but for the alleged misrepresentations now focussed upon or at least that the plaintiff’s investment was actually influenced or induced by the matters now raised.  The failure to show causation or reliance in this sense may well in itself be fatal to the plaintiff’s argument on this appeal: see Chitty on Contracts (32^nd ed), Vol 1, §7-038.

(1)  Representation on own-managed hotels

50.  We now turn to the representation referred to in §45(1) above.  The plaintiff submitted that the 3^rd defendant had not in fact acquired 2 own-managed hotels.  It had signed agreements to acquire the Xingdu Hotel in Kaiping and the Changlin Hotel in Jilin, subject to conditions precedent, but it was said that by April 2008 the agreement for the Changlin Hotel had lapsed due to non-fulfilment of the conditions.  It was argued that this constituted an actionable misrepresentation.

51.  We are unable to accept this submission.  First, nowhere was it averred in the plaintiff’s pleadings that the statement that the Group had “acquired” the 2 hotels was false or misleading because the Group had only entered into agreements to do so which had not yet been completed.  What was complained about in the pleading was that the 3^rd defendant turned out to own Xingdu Hotel and Qiceng Hotel, instead of Xingdu Hotel and Changlin Hotel as stated in the Group Valuation Materials.  There is nothing to suggest how this misstatement could in any way have influenced the plaintiff.

52.  Secondly, as Mr Bernard Mak, counsel for the defendants, pointed out, while the Group Valuation Materials stated (on page 20 in the “Overview” sub-section on the “Implementation of Hospitality Business”) that the 3^rd defendant had “acquired” 2 hotels in November 2007, when it came to the “Own-managed Hotels” sub-section on page 22, it stated that in November 2007, the Group had entered into sale and purchase agreements to acquire the 2 hotels concerned.  When this was pointed out by the Judge during the plaintiff’s counsel’s cross‑examination of the 1^st defendant about the word “acquired”, the point was not pursued any further.  In these circumstances the fact that the sales had not yet been completed could not be said to have rendered the relevant statement untrue.

53.  Thirdly, insofar as it is suggested that the statement had become false because the sale and purchase agreement in relation to the Changlin Hotel had by 10 April 2008 lapsed due to non-fulfilment of conditions precedent, this was again not the case pleaded by the plaintiff.  In any event, it seems to us the relevant conditions precedent were for the benefit of the 3^rd defendant.  The fair inference, in the absence of contrary indications, is that it was up to the 3^rd defendant to decide whether the agreement would be terminated because of non-fulfilment of the conditions by the stipulated date of 31 March 2008.  The evidence given by the defendants was that in fact the 3^rd defendant did not terminate the agreement and it was not regarded by the Group as having “lapsed”.  The 3^rd defendant wanted to proceed with the transaction and was prepared to allow the vendor more time in which to fulfil the conditions.  The deal was not called off until much later.  Accordingly we do not think that there was a material misstatement in this respect as alleged.

(2)  Representation on lease-managed hotels

54.  The plaintiff submitted that the representation in the Group Valuation Materials that the 3^rd defendant had 9 lease-managed hotels was false because in fact only 2 of those 9 hotels had gone into operation at the time of the Group Valuation Materials or by April 2008.  For the following reasons we do not think that this assists the plaintiff.

55.  First, the plaintiff’s pleaded case of falsity was that the 3^rd defendant had only leased 2 lease-managed hotels instead of 9 as alleged in the Group Valuation Materials.[22] This was met by the defence which pleaded that the 3^rd defendant had in October 2007 entered into 9 management contracts to lease and manage 9 hotels.[23]  To this, the plaintiff replied that it was stated in the Information Memorandum of 2009 that the 3^rd defendant only lease-managed 2 hotels.[24]  That document, however, was dated March 2009.  There was no pleading that the Group Valuation Materials was false or misleading because although 9 leases had been signed, only 2 of the 9 hotels were in operation.  The allegation in the Reply was not to the point since the Information Memorandum of 2009 stated the position as at 2009, which did not affect the validity of any representation in the Group Valuation Materials as to the position in the first half of 2008.

56.  Secondly, there was no express statement in the Group Valuation Materials that all 9 hotels were open for business.  The 1^st defendant explained in her evidence that after obtaining the lease of a hotel, it was necessary for the defendants’ staff to assess whether modifications and renovations were necessary and, if so, the hotel would only re-open for business after such renovation works.  The valuations and projections in the Group Valuation Materials did not indicate that the hotels were in operation at the commencement of 2008 when the Group Valuation Materials was prepared.  As we have stated above, to the contrary, the cash flow models assumed that there was no hotel in operation at the beginning of 2008, and that the projected number of hotels would come into operation during 2008 and subsequent years.  There was no finding below that the projections or valuations, as predictions and opinions, were rendered invalid or misleading or falsified as a result.  Nor have the plaintiff’s counsel sought to make that contention on this appeal.

57.  Thirdly, the Judge virtually rejected all of the plaintiff’s contentious evidence. He queried why the plaintiff took no action when he discovered the alleged falsity of the representations.  No argument has been raised to challenge the Judge’s rejection of the plaintiff’s evidence and credibility.  There was no evidence from the plaintiff accepted by the Judge that the representation under consideration was in any way influential in his consideration of the investment in the 3^rd defendant or in any way induced his decision to invest.  Nor do we think this could be presumed: it is not obvious that whether the 9 hotels, which had been leased, were already open for business as opposed to being renovated or otherwise being prepared would significantly impact upon the valuation of the Group or was otherwise significant from the plaintiff’s point of view.  For these reasons we conclude that the plaintiff equally cannot succeed on this alleged misrepresentation.

(B)  The second matter – independence of placees

58.  The plaintiff argued that the defendants misrepresented to him in April 2008 that various other independent investors would also be investing in the 3^rd defendant on the same terms as the plaintiff. 

59.  There are several problems with this argument. First, the representation, as pleaded, is a statement about a future state of affairs.  It is not a statement of existing fact as required by the law generally in order to found a cause of action in misrepresentation.  Indeed, the same statement was pleaded as a warranty, term and condition of the plaintiff’s agreement to purchase shares.  In order to rely on it as a statement of existing fact, the plaintiff had to have understood it as a statement of the defendants’ existing belief at the time.  But viewed in this way, there is no evidence that the defendants knew that the investors eventually assembled would not be independent.

60.  Secondly, there were in fact various other independent investors who also purchased shares in the 3^rd defendant at the same price and on the same terms.  There were 9 investors apart from the plaintiff who were placed shares via President on 11 June 2008.  None of them is said to have been connected in any way with the defendants.  It is true that there were 6 placees via Emperor (including Ms Chui) who were not independent parties, as the Commission eventually concluded.  But this did not render the statement false, unless the plaintiff contended that the alleged statement by the defendants meant that all the investors in the placement exercise would be independent.  This was, however, not the case pleaded.  The plaintiff’s concern appears to have been that he did not want himself to be the only independent person making the investment.

61.  Thirdly, in his findings, the Judge rejected the plaintiff’s evidence that the defendants made the representation in question, stating:[25]

“Objectively speaking, at such an early stage, it was not likely that the 1^st and 2^nd defendants would promise to the plaintiff that there were other independent investors, when nothing concrete about the upcoming placement plans had actually been confirmed.”

On well established principles such a finding of fact by the Judge cannot be disturbed on appeal unless it is shown to be plainly wrong: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, §§34, 37 & 42. 

62.  Counsel for the plaintiff submitted that the Judge erred in three respects.  First, it was submitted that timing had little significance since, as the regulations required and by business necessity, the placees had to be independent.  We agree with Mr Mak that this is not a valid reason to impugn the Judge’s finding.  The point made by the Judge was that April 2008 was an early stage in the scheme of things and at that point in time there were no concrete plans on fundraising, as can be seen from his acceptance of the defendants’ submission that it was impossible to say “whether there would be other investors as early as in April 2008 since they did not have any concrete future plans of placement”.[26] The Judge plainly accepted the 1^st and 2^nd defendants’ evidence to that effect.[27]  There is no challenge against this finding.

63.  So far as is relevant, the need for the other investors to be independent only arose if (i) funds were to be raised by placing shares with other investors; (ii) the placement would take the form of a “top-up placement”, since otherwise the subsequent subscription by the original shareholders would trigger the obligation to make a general offer. There is, however, no evidential basis to contend that this was the only possible mode of fundraising available to the 3^rd defendant at the time.  As an example of other possible measures, Mr Mak submitted that a direct placement of new shares to a connected person was possible under the relevant listing rules provided independent shareholders’ approval was obtained. Further, he submitted that a top-up placement to connected persons was possible and a waiver from the need to make a general offer would be granted if such persons, though not independent, were not acting in concert with the controlling shareholders.  In circumstances where these matters have not been investigated at trial, there is in our view no foundation laid for the plaintiff’s attack on the finding made by the Judge on this ground.

64.  The second point made by counsel for the plaintiff is that the Judge failed to consider that at least 6 placees, including Ms Chui, were found by the Commission not to be independent.  We fail to see how this can help the plaintiff in challenging the Judge’s finding that no relevant representation was made to the plaintiff.  There is no evidence that in April 2008, at the time when the alleged representation was made, the defendants had already enlisted the assistance of Ms Chui to procure potential placees.  But even if there were such evidence, it would only be evidence of falsity of the alleged representation, not evidence tending to show that the representation had in fact been made.

65.  Thirdly, counsel submitted that the Judge failed to consider the 1^st and 2^nd defendants’ evasiveness and untruthfulness in their evidence on the independence of the other placees.  Again we fail to see how this undermines the finding that no relevant representation was made to the plaintiff in April 2008 as alleged.  Even assuming the premise of counsel’s argument to be correct, the defendants might have been evasive for various reasons such as because they had previously stated to the Commission that the placees were all independent.  Such evasiveness would not be probative of the existence of the representation to the plaintiff.  Furthermore, while the 1^st and 2^nd defendants had denied the representation, the plaintiff does not establish it by discrediting them: Hobbs v Tinling (CT) & Co Ltd [1929] 2 KB 1 at 21. 

66.  The critical matter is the plaintiff’s own evidence in support of the alleged representation.  The Judge rejected it.  While the specific reason for doing so was given by the Judge at §44 of the Judgment as quoted above, the Judge’s conclusion cannot be examined in isolation and divorced from the wider background of his more general assessment of the plaintiff’s evidence.  Towards the end of his judgment the Judge expressed “serious doubt” on the plaintiff’s credibility, finding his case to be “unbelievable and inherently improbable”.  In our view, the plaintiff has not come near to the threshold for challenging the finding of primary fact in question.

VI.  CONCLUSION AND ORDERS

67.  For the foregoing reasons, we reject the 2 main contentions advanced in support of the appeal, which must therefore be dismissed.

68.  As to costs, while Mr Mak has referred us to China Gold Finance Ltd v CIL Holdings Ltd (unrep, CACV 11/2015, 8 January 2016), where it was stated that misuse of the appellate procedure could result in costs sanction in the form of an adverse costs order on a higher scale, we would make an order nisi that the plaintiff do pay the defendants the costs of the appeal, to be taxed on the party and party basis if not agreed.