GOLDEN EAGLE INTERNATIONAL (GROUP) LTD v. GR INVESTMENT HOLDINGS LTD

HCA 2032/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2032 OF 2007

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J U D G M E N T

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1.  By an agreement dated 15 January 2000 [“the Agreement”], the Defendant appointed the Plaintiff as agent in respect of the sale of 26.8% of the shares [“the Shares”] in a company called White Cat in Shanghai.  Clause 2 of the Agreement provides for the remuneration payable to the Plaintiff and Clause 3 provides for the timing of the payment of such remuneration.

2.  Since the main issues between the parties have to be resolved by reference to the proper construction of some clauses in the Agreement, I will set out the material terms below[1],

“                                  委 託 協 議 書

甲方：德眾集團投資有限公司

乙方：金鷹國際(集團)有限公司

引言:    甲方現持有中國上海市白貓有限公司（“該公司”）26.8% 之股權（“該批股權”）並有意將該批股權全部出售。甲乙雙方經友好協商，現甲方同意全權委託乙方負責洽談，處理出售該批股權，條件如下:-

1.     乙方保証出售該批股權的價錢將不低於人民幣捌仟伍佰萬元正（¥85,000,000.00）。乙方負責按中國銀行現鈔兌換價將出售股權所得人民幣匯到香港甲方指定銀行帳號。

2.     甲方同意若乙方能以¥85,000,000.00之價錢成功售出該批股權，甲方將同意給予乙方5%作為顧問費。如果出售價錢超出¥ 85,000,000.00，即超出部份甲乙雙方各佔50%。

3.     甲方同意在收到第一筆¥2,500萬後，即先支付予乙方顧問費¥300 萬。在甲方收到全部出售該批股權之款項後20 天內支付所有餘下之顧問費給予乙方。

4.     甲方同意在甲方簽署出售該批股權後，乙方需負責跟進收取有關款項及安排匯款到香港甲方指定銀行。待所有上述程序完成後，乙方之責任方為完成，乙方即有權收取顧問費。

5.     甲方同意此委託協議有效期為半年，由簽署後起正式生效。在生效期內，甲方不得撤回，取消或委託其他任何人士或自行與任何有興趣收購該批股權之投資者洽談出售該批股權。如要取消委托，必須雙方同意。

6.     此委託協議根據香港法律執行，一式兩份，甲、乙各方手執一份。

二零零零年壹月十五日           簽署

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甲方                                                    乙方”

3.  The Shares were actually held by a company called Sun Kai Yip (Shanghai) Industrial Investments Ltd [“SKY”].  SKY was in turn owned by a wholly owned subsidiary of the Defendant.  By an agreement of 5 May 2000, SKY sold the Shares to a PRC purchaser [“the Purchaser”] at the price of RMB 108 million.

4.  After making payment in the sum of RMB 75 million, the Purchaser defaulted.  SKY had to claim for the balance through arbitration proceedings.  After the arbitration award was issued in favour of SKY, it had to be enforced by legal proceedings in the mainland.  The balance of the purchase price in the sum of RMB 33 million with interest was paid by the Purchaser on 13 January 2007.

5.  By reference to the formula for calculation of remuneration under the Agreement, the Plaintiff reckoned that it was entitled to commission in the sum of RMB 15.75 million.  It said the Defendant had only paid a commission of RMB 3 million.  In this action, the Plaintiff claimed for the balance due to it.

6.  The Defendant disputed the Plaintiff’s entitlement to any remuneration.  Further, it averred that it had paid a total sum of RMB 7,324,564.49 to the Plaintiff upon misrepresentations by the Plaintiff.  It counterclaims for the repayment of this sum.

The issues

7.  In the pleadings, the Defendant took issue as regards the validity of the Agreement and alleged that the person who signed the same did not have authority to represent the Defendant.  By the time of the pre-trial review, counsel for the Defendant intimated to this court that the Defendant accepted that the Agreement was binding on the Defendant.  The only questions in issue, as far as the claim is concerned, are the proper construction as to the obligations of the Plaintiff under the Agreement and whether the Plaintiff had discharged such obligations to entitle it to the remuneration provided for under Clause 2.

8.  This remains the position of the Defendant in the closing submissions of Mr Chan[2].

9.  As regards the counterclaim, apart from the alleged misrepresentations, there are dispute of facts as to whether the Defendant had paid the Plaintiff the following sums on account of the Agreement in addition to RMB 3 million.

(a)     RMB 1 million on 16 May 2000;

(b)    $3 million on 18 August 2000.

The Plaintiff denied receiving sum (a).  As for sum (b), the Plaintiff said it was paid for another matter and had nothing to do with the Plaintiff’s commission under the Agreement.

Construction of the Agreement and the Plaintiff’s performance of its obligations

10.  Clauses 1 and 4 of the Agreement set out the responsibilities of the Plaintiff after the making of the agreement for the sale and purchase of the Shares.  The Plaintiff had to follow-up with the collection of payment of the purchase price and the transmission of the same to Hong Kong.

11.  The Defendant contended that in addition to the procurement of the sale, the Plaintiff had to fulfill its obligations to follow-up with the receipt of the whole of the purchase price and its remittance to the Defendant’s designated bank account in Hong Kong before the Plaintiff was entitled to any remuneration under the Agreement.

12.  At paragraph 6 of the Amended Defence and Counterclaim, the Defendant averred that the following up of the receipt of the balance of the purchase price involved the Plaintiff using its own means and efforts, including but not limiting to the institution of arbitration proceedings at its own costs for the purpose of recovering the balance.

13.  Mr Chan invited the court to compare the Agreement with the terms in the earlier agency agreements between the Plaintiff and the Defendant regarding the sale of the Shares.  Counsel submitted that the higher rate of commission payable under the Agreement was agreed because the Plaintiff had assumed more onerous obligations under the Agreement.

14.  Counsel further asked the court to take into account the factual matrix set out in paragraphs 40 and 41 of his Closing Submissions in construing the Agreement.

15.  On the comparison with the terms of the earlier agreements, whilst I can see that the Plaintiff had assumed an obligation to follow up the payment of the purchase price and to arrange for its remittance to Hong Kong, one must primarily refers to the terms in the Agreement to ascertain the obligations undertaken by the Plaintiff.  In particular, I do not find the comparison useful in resolving the question whether the obligation to follow-up with payment under Clause 4 includes the obligation to institute arbitration proceedings at the Plaintiff’s own costs in case of default of payment by the Purchaser.

16.  In this connection, the Defendant did not lead any evidence from the person entering into the Agreement on its behalf.  The only person who had personal knowledge and gave evidence about the making of the Agreement was Mr Cheung of the Plaintiff.  When Mr Chan cross-examined Mr Cheung, he did not suggest to him that the obligation to follow-up with payment under Clause 4 involves the undertaking of arbitration proceedings at the Plaintiff’s own costs.

17.  To require an agent to undertake at his own costs to pursue against a defaulting party is an unusual obligation under an agency agreement.  As the Plaintiff is not a party to the agreement for the sale and purchase of the Shares, it cannot pursue such a claim in its own name and it can only do so in the name of the Defendant.  If the Plaintiff commences proceedings in the name of the Defendant, it would expose the Defendant to potential liability as to costs vis-à-vis the Purchaser irrespective of the position between the Plaintiff and the Defendant.  But the Agreement does not contain any clause authorizing the Plaintiff to commence arbitration or legal proceedings on behalf of the Defendant, not to mention any indemnity for costs of such proceedings.

18.  The relevant phrase used in Clause 4 is “跟進收取有關款項”.  Its literal meaning is to follow-up with the collection of the relevant money.  Even taking into account of the factual matrix alluded to by Mr Chan, I fail to see how collection of money can encompass an obligation to pursue legal or arbitration proceedings at one’s own costs.  I do not think the Plaintiff was under any obligation to pursue a claim for recovery of the balance of the purchase price at its own costs under the Agreement.

19.  As for the arrangement for the transmission of funds to Hong Kong, it must predicate upon the Purchaser paying the purchase price to the Plaintiff.  The factual matrix relied upon by the Defendant does not suggest that the Plaintiff had guaranteed such payment.  Thus, as the Purchaser had defaulted in the payment of the balance, the obligation on the part of the Plaintiff to arrange for such sum to be transmitted to Hong Kong did not arise.

20.  When the balance was eventually paid in 2007, unless the Plaintiff had been given the authority to collect such sum from the Purchaser, it could not be blamed for not making the arrangement for its remittance.  By that time, the evidence shows that the Defendant had taken the matter in its own hand and there was no evidence suggesting that it had asked the Purchaser to make the payment to the Plaintiff for its remittance to Hong Kong.  Thus, the obligation on the part of the Plaintiff to remit did not arise.

21.  Mr Chan further relied on Clause 3 and contended that the Agreement envisaged the Plaintiff would not get the balance of the commission (viz. deducting the first RMB 3 million) until 20 days after the Defendant received the whole of the purchase price.  That is correct.  But I do not see how that provision can be elevated to a term imposing a positive obligation on the part of the Plaintiff to pursue legal or arbitration proceedings against the Purchaser at its own costs.

22.  In my view, there is a distinction between the timing for the payment of the balance of the commission and a positive obligation on the part of the Plaintiff to pursue against the Purchaser in case of the latter’s default in the payment of the purchase price.  Thus, whilst the Defendant can withhold the payment of the balance of the commission pending the full payment of the purchase price by relying on Clause 3, the Defendant cannot point to the failure of the Plaintiff to pursue against the Purchaser as a breach of the Agreement to discharge the Defendant from paying even after it had received the full purchase price.

23.  There is no suggestion that the Defendant had, after the receipt of the balance of the purchase price, requested the Plaintiff to arrange for the remittance of such fund to Hong Kong.  There is no evidence from the Defendant suggesting that it had to pay extra costs in arranging for the remittance of such fund.  In the circumstances, I hold that there was no breach of obligation on the part of the Plaintiff in respect of the arrangement for remittance.

24.  Apart from the failure to pursue arbitration and legal proceedings and to arrange for the remittance of payment, the pleadings and witness statements filed on behalf of the Defendant do not make any other specific allegations against the Plaintiff in respect of the follow-up with the collection of purchase price.

25.  As Mr Ng pointed out there is no dispute on the evidence that the Plaintiff had followed up with the first tranche payment of the purchase price in the sum of RMB 75 million.  It also emerged from the evidence that Mr Cheung of the Plaintiff had assisted in instructing lawyers to demand payment of the balance of the purchase price from the Purchaser up to 2003.  Mr Cheung had been an employee of the Defendant and he had to report to Mr Lam of the Defendant the Plaintiff’s effort in follow-up with the Purchaser.  His employment was terminated in September 2002.  Even after that, he assisted in the giving of information to the Defendant’s lawyers at the Llinks Law Office.  His evidence is supported by the production of several draft demand letters of January 2003 on his part.

26.  Despite such demand letters by the Defendant’s lawyers, the Purchaser did not pay the balance of the purchase price.  On 12 February 2003, Llinks Law Office wrote to the Defendant advising, inter alias, that in view of the time limit for litigation the Defendant should sue for the balance of the purchase price before April 2004.

27.  By that time, the officer in charge of the matter in the Defendant was Ms Shu.  The letter of Llinks Law Office was addressed to her.  It is plain from the evidence that by then the Defendant knew that it had to resort to some form of legal proceedings in order to enforce its claim for the balance of the purchase price.  As discussed above, it was not the Plaintiff’s obligation to commence legal proceedings.  The decision to commence proceedings had to be rested with the Defendant.

28.  In such circumstances, it is difficult to see what further follow-up actions the Plaintiff can be required to take.  The Plaintiff had no means to direct or procure the Purchaser to honour its obligation to pay.  As far as legal action was concerned, the Defendant was in control and the Plaintiff could not decide for the Defendant.

29.  Subsequently, the Defendant did take out arbitration proceedings in 2004.  Another law firm was engaged by the Defendant.  Arbitration award was entered in its favour on 31 August 2005.  Despite that, the Purchaser did not pay the balance.  The Defendant issued enforcement proceedings in the Immediate People’s Court at Shanghai on 27 February 2006.  Finally, the Defendant obtained payment on 16 January 2007.

30.  There was no suggestion from the Defendant during the period from 2004 to 2007 that there were specific steps which the Plaintiff could have taken by way of follow-up actions in collecting payment that the Plaintiff had failed to undertaken.  At that time, the matter was basically in the hands of the lawyers and Ms Shu was overseeing it.  In the light of the recalcitrant attitude of the Purchaser, I fail to see what effective follow-up actions could have been taken by the Plaintiff.

31.  At the trial, the Defendant alleged that Mr Cheung of the Plaintiff had disappeared and could not be located after 2002.  In the course of the evidence of Mr Cheung, Mr Chan suggested in his cross-examination that Mr Cheung could not be located by the Defendant after 2002.  This was denied by Mr Cheung.  Mr Cheung further said in his re-examination that Mr Lam of the Defendant told him not to be involved in the matter when he left his employment with the Defendant.

32.  Then in the course of re-examination of his own witness Ms Shu, Mr Chan elicited the evidence from her that Mr Cheung did not assist in the chasing for payment from the Purchaser after 2002.  This piece of evidence is inconsistent with the fact that Mr Cheung did participate in the communication with Llinks Law Office leading to the demand letters issued in January 2003.

33.  Mr Lam of the Defendant gave evidence to the effect that Mr Cheung disappeared after his employment was terminated.  He denied having told Mr Cheung not to be involved in pursuing for payment of the balance of the purchase price.  Somewhat inconsistent with what he said about locating Mr Cheung, Mr Lam testified that after Mr Cheung left the employment of the Defendant Mr Lam had persistently requested Mr Cheung to account for the use of the RMB 7 million odd paid to him and demanded him to settle the unfinished business with the Purchaser.

34.  In his re-examination Mr Lam said it was difficult to locate Mr Cheung after September 2002 as the Defendant did not know where he lived and he was always not contactable by telephone.  Mr Lam said the Defendant wished to ask Mr Cheung to assist Ms Shu but Ms Shu had difficulties in getting in touch with him by phone.  It was subsequently decided between Ms Shu and Mr Lam that instead of procuring payment from the Purchaser through the connection Mr Cheung had with them, the Defendant had to sue for the balance of the payment.

35.  Mr Lam further said SKY commenced legal proceedings against Mr Cheung in respect of another matter in 2004 and it was only in 2005 that service was effected.

36.  Having considered the evidence of these witnesses against the documents shown to this court, I find that up to January 2003 the Defendant was able to get in touch with Mr Cheung and he had assisted in confirming the contents of the draft letters of Llinks Law Office.

37.  I also find that all along Mr Lam was not happy with the sale of the Shares in view of the default of the Purchaser.  He held the opinion that Mr Cheung was accountable for the default of the Purchaser.  Further, as he testified in the witness box, he took the view that the commission to the Defendant under the Agreement was not payable until the purchase price had been fully paid.  In the meantime he regarded the payments to the Defendant as advances for what he called “運動費” which I understand to mean funds for irregular activities to induce the executives of the Purchaser to procure the payment of the purchase price.  Thus, when such goal could not be achieved he was of the view that Mr Cheung must be at fault and he should account for the use of the money paid by the Defendant and the Defendant had no obligation to pay for the balance of the commission.

38.  At the same time, Mr Lam had to agree that under the Agreement there was no obligation on the part of the Plaintiff to use such irregular means to procure the payment of the purchase price.  The follow-up action under Clause 4 of the Agreement was not referring such illicit activities.

39.  In this respect, I find Mr Lam’s stance to be self-contradictory.  Be that as it may, subjectively Mr Lam did take the view that Mr Cheung had been at fault.  This coloured his opinion as regards the Plaintiff’s entitlement under the Agreement.

40.  On the evidence, I find that after the advice from Llinks Law Office the Defendant was aware that the only way forward was to take out legal proceedings.  The Defendant should equally be aware that there was nothing much Mr Cheung could do in terms of follow-up actions after February 2003.  I accept that there was not much contact between Mr Cheung and the Defendant after February 2003.  But I do not find that to be a breach of the Plaintiff’s obligation to follow-up under Clause 4.  As explained, by that time, there was nothing that the Plaintiff could have done to procure payment from the Purchaser.  The Defendant had failed to pinpoint any specific failure of the Plaintiff in that regard.  The matter was placed in the hands of the lawyers and Ms Shu.  From then on, the Plaintiff had no further role to play in terms of follow-up actions.

41.  There is a dispute as to whether Mr Lam had told Mr Cheung not to be further involved in the matter.  On the balance of probabilities, I find that Mr Lam had given the message to Mr Cheung that the matter would be handled by Ms Shu and the lawyers though he still expected Mr Cheung to co-operate with them to provide assistance in pursuing legal claims against the Purchaser when needed.  Such expectation of Mr Lam could only stem from the previous employment relationship as the Agreement did not provide for the same.

42.  Mr Lam was also wrong in holding the view that the Plaintiff would not be entitled to any commission until the full purchase price was paid.  Clause 3 of the Agreement provided that after the Defendant had received the first tranche payment up to RMB 25 million, the Plaintiff was entitled to commission of RMB 3 million.  The first tranche payment of RMB 75 million was duly paid by the Purchaser and the Plaintiff was therefore entitled to the RMB 3 million commission in 2000.

43.  Thus, in the receipt prepared by the Defendant for Mr Cheung to sign on 14 June 2000, the sums paid (in the total of $3 million) were stated to be commission.

44.  Mr Chan argued that the RMB 3 million was only advanced payment whilst the real entitlement to any commission had to stem from full payment of the purchase price.  In this connection, he relied on Clause 4 and the words “先支付” in Clause 3.

45.  Assuming that counsel is correct in the contention that the RMB 3 million could only be regarded as advanced payment, it does not take the Defendant’s defence further because by the time of the writ the Defendant had actually received full payment, albeit after years of legal proceedings against the Purchaser.  The successful claim against the Purchaser was based on the sale and purchase agreement which was procured by the Plaintiff.  Thus, on the final analysis, the Defendant did obtain the benefit of that agreement.

46.  Mr Chan also contended that under the Agreement the event that gives rise to the Plaintiff’s entitlement to commission is the receipt of the full purchase price by the Defendant and that the Plaintiff had to be the effective cause of that event.  He further submitted that by reason of the Plaintiff’s refusal to perform the follow-up actions after September 2002 the Defendant was discharged from its obligation to pay commission as the effective cause of the payment of the balance of the purchase price was the Defendant’s effort in the legal proceedings against the Purchaser.

47.  I do not accept this submission.  I have already explained why I do not find any breach on the part of the Plaintiff in the performance of its obligations under Clause 4.  I also see no basis for qualifying the Plaintiff’s right to commission by any requirement of effective cause in terms of the full payment of the purchase price.  The Agreement does not contain any provision to such effect.  And it is difficult to apply a test of effective cause.  As I said above, in a sense the Plaintiff’s effort in brokering the sale and purchase can be regarded as the effective cause because without that sale and purchase agreement the Defendant would have no basis to sue for the balance of the purchase price.  In substance, the submission of effective cause is a roundabout way of saying that the Plaintiff had an obligation under the Agreement to safeguard against any default by the Purchaser.  I have no hesitation in rejecting the argument.

48.  In the pleadings the Defendant relied on Clause 5 of the Agreement and raised the point that the Plaintiff was not entitled to commission if the purchase price was not paid within 6 months.  Mr Chan did not make any submission in this respect.  In my judgment, the proper construction of Clause 5 is that the 6 months’ period referred to the time which the Plaintiff was given to broker a deal.  Once an agreement was reached within 6 months, the time limit had no further significance.  The Defendant and the Purchaser were bound by the terms of the sale and purchase agreement after its execution.  Neither party was free to retract.  There could not be any further possibility of the withdrawal of the authority of the Plaintiff (adverted to under Clause 5) after that.  I hold that there is no merit in this line of defence.

49.  All in all, I find that the Plaintiff did not breach any of its obligations under the Agreement.  In accordance with the terms of Clause 3, the Plaintiff was therefore entitled to payment of the balance of the commission on 20 days after the Defendant’s receipt of the full purchase price.

50.  Subject to the question of how much had been paid to the Plaintiff on account of commission, I hold that the Plaintiff succeeds in its claim.

The allegations of misrepresentations

51.  Before I turn to the dispute as regards the sums paid by the Defendant on account of commission, I deal briefly with Mr Lam’s allegations that payments were made to the Plaintiff as a result of misrepresentations by Mr Cheung.

52.  For the purpose of this action, once it is resolved that the Plaintiff was entitled to the commission under the Agreement, the counterclaim based on misrepresentations must fail.  Irrespective of what the position might be if the Defendant did not manage to get the full purchase price from the Purchaser, once it did receive full payment the Plaintiff was entitled to keep the sums paid and sue for the balance of the commission.  The writ in this action was issued on 22 September 2007.  By then the Defendant had obtained full payment.  There is no dispute that the sums paid to the Plaintiff was less than the full amount of the commission calculated in accordance with Clause 2.  Hence, whatever sums paid to the Plaintiff would be completely absorbed by the Defendant’s liability to pay commission under the Agreement.

53.  Further, on the evidence, I am not satisfied that there was any misrepresentation by Mr Cheung or the Plaintiff as to the nature of the sums paid prior to 14 June 2000.  The receipt of 14 June 2000, prepared by the Defendant for Mr Cheung’s signature and considered by Mr Lam before he asked Mr Cheung to sign, clearly stated that the $3 million was paid as commission.  I do not believe Mr Lam when he said he had been misled by Mr Cheung as to the nature of these payments.

54.  At the same time, I noted that some of the payments to the Plaintiff were made before the conclusion of the sale and purchase agreement with the Purchaser.  It is not clear from the evidence whether at that early stage Mr Lam was actively involved.  He gave evidence that those payments at early stage were treated as loans advanced to the Plaintiff.  Mr Cheung said these were paid as advanced commission.  However, before the conclusion of sale and purchase agreement, there was no obligation on the Defendant to pay any commission.  It is more likely that these sums were paid as loans. 

55.  Irrespective of what the position might be prior to the conclusion of the sale and purchase agreement, by 12 June 2000 (the date of the cheque for the last payment from the Plaintiff evidenced by the receipt of 14 June 2000) the deal had been struck and the first tranche of purchase price in the sum of RMB 75 million had been paid on 23 May 2000.  Pursuant to Clause 3 of the Agreement, the Plaintiff was entitled to advance commission in the sum of RMB 3 million.

56.  I do not believe for a moment that Mr Lam had no knowledge of the Agreement when he signed the cheque of 12 June 2000.  He specifically said he had enquired with his staff about the amount in the cheque.  Thus he was concerned as to why the payment had to be made.  He said his staff shown him the receipt (at that stage it was not yet signed by Mr Cheung because Mr Lam had not yet signed the cheque).  The receipt clearly stated that the $3 million was paid as commission for the sale of the Shares.  Given the scale of the sale transaction and the receipt of RMB 75 million from the Purchaser, I also find it incredible that Mr Lam was ignorant about the same.  He did not say he made further enquiry with his staff or Mr Cheung before he signed the cheque of 12 June 2000.  The irresistible conclusion is that Mr Lam knew full well that the $3 million mentioned in the receipt was paid as commission to the Plaintiff under the Agreement.

57.  I found as a fact that by 14 June 2000, Mr Lam and the Defendant was happy to treat the earlier advances as part of the commission payable under the Agreement.  It was on that basis that Mr Lam signed the cheque of 12 June 2000 and asked Mr Cheung to sign the receipt of 14 June 2000.

58.  Thus the counterclaim for misrepresentation failed.

The disputed sums

59.  The Defendant said a sum of RMB1 million was paid to an entity in Shanghai on 16 May 2000 on account of the commission payable to the Plaintiff.  Apart from the evidence of Mr Lam, the Defendant relied on an email from Mr Lam of 11 May 2000 and some internal payment vouchers evidencing the payment of RMB 1 million to a company called 上海文昌科技.  Mr Lam testified that this company name was given to the Defendant by Mr Cheung.

60.  On the other hand, the Plaintiff denied that it had anything to do with this company.  Mr Cheung said he did not know the company and denied he had told the Defendant to remit the RMB 1 million to it on behalf of the Plaintiff.  Mr Cheung did not remember seeing the email of 11 May 2000.

61.  This sum was paid prior to the receipt of 14 June 2000.  There was no reference at all in that receipt regarding this payment.  Mr Lam explained that it was due to the carelessness on the part of his staff.  He further said that there had not been any complaint by Mr Cheung that he did not receive the RMB 1 million after the email of 11 May 2000. 

62.  There is no documentary evidence whatsoever connecting上海文昌科技 with the Plaintiff or Mr Cheung.  There was no reference to this company in the email of 11 May 2000.  The Defendant only rely on the evidence of Mr Lam.  However, I do not find Mr Lam’s explanation as regards the absence of any reference to sum in the receipt to be satisfactory.  It was quite obvious that the Defendant was trying to make a comprehensive record of all the payments on account of commission to the Plaintiff when it prepared the receipt.  Thus instead of simply stating that the Plaintiff had received $3 million by way of commission, detail breakdowns were set out including the $60,000 interest regarding the sum of $1.6 million paid in December 1999.  That was meant to be an account stated.  Given the proximity in time as to the alleged RMB 1 million payment, in the absence of any evidence from the accounting staff of the Defendant regarding how the relevant records were kept and how the receipt was prepared, I do not feel able to rely on Mr Lam’s bare assertion that it was a mistake.  I agree with Mr Ng that Mr Lam’s attempt to explain such mistake by reference to the fact that the RMB 1 million was paid in RMB as opposed to Hong Kong dollars is no explanation at all.  The payment in March 2000 was also in RMB.

63.  The Defendant was mindful of the need to have proper receipt from the Plaintiff regarding the commission payments.  I find it incredible that there was not a single document evidencing that the RMB 1 million payment to上海文昌科技was made at the request of the Plaintiff or Mr Cheung.  As I said above, 上海文昌科技had no apparent connection with Mr Cheung or the Plaintiff.  A seasoned businessman like Mr Lam must have appreciated that if a payment to this company was to be booked as payment on account of the Plaintiff, proper documentation of such instruction from the Plaintiff was required.

64.  As regards Mr Lam’s reliance on the email of 11 May 2000, I do not find that to be of much assistance.  Even if it had been copied to Mr Cheung, I do not think I can regard it as proving that Mr Cheung had received RMB 1 million around that time.  I do not see any basis for suggesting that Mr Cheung must have protested if the sum had not been advanced.  Apart from the bare assertion of Mr Lam, there is no evidence connecting the email with the payment to 上海文昌科技.  The probative value of this email is minimal in the light of the receipt.

65.  On the balance of probabilities, I am not satisfied that this sum of RMB 1 million was paid by the Defendant on account of its commission liability towards the Plaintiff under the Agreement.  Nor am I satisfied that the RMB 1 million was paid at the request of Mr Cheung to 上海文昌科技.  Thus, the Defendant cannot refer to this RMB 1 million to reduce its liability towards the Plaintiff under the Agreement.

66.  The other disputed sum is a sum of $3 million paid by a subsidiary of the Defendant called Attentive Investments Ltd to the Plaintiff on or about 18 August 2000.  Mr Lam’s evidence was that the sum was paid as a result of misrepresentation from Mr Cheung that the latter would be able to persuade a Cheung Lap Ping of the Purchaser to procure the payment of the balance of the purchase price.  In his oral testimony, Mr Lam said he was told by Mr Cheung that in exchange for procuring smooth payment of the purchase price, Cheung Lap Ping demanded the Defendant to assist in the acquisition of a production line at Shantou which he could resell at a profit.  Mr Lam did not believe this was possible but he yielded to the request of Mr Cheung and the $3 million was given to the Plaintiff.  Mr Lam said he told Mr Cheung he had doubt about such proposal and he would not involve in such activity but he would pay this $3 million as advanced commission.

67.  On the other hand, though the Plaintiff admitted receiving the sum, Mr Cheung testified that it was paid for the purchase of a production line of computer monitors at Shantou on behalf of Mr Lam.  He said Richlink Technology Limited [“Richlink”] was set up by Mr Lam with a $1.1 million paid to the Plaintiff on 20 April 2000.  Mr Cheung and his daughter held shares in that company for Mr Lam.  Richlink entered into an agreement on 22 June 2000 with a Shantou company called 東南亞 (中 國) 制衣to purchase the production line and a sum of $3.89 million was paid, partly with the $3 million provided by Mr Lam to the Plaintiff.  According to Mr Cheung, the shortfall was paid by him and he had not sought any reimbursement from Mr Lam or the Defendant.

68.  According to the company search of Richlink, the shareholders of the company were two BVI companies.  The directors were Cheung Ching Fan, the daughter of Mr Cheung and a person called Lin Jing Guo [“Lin”].  Mr Cheung said the two BVI companies were Mr Lam’s nominees.  Mr Lam denied he had any knowledge about them.  In his oral evidence, Mr Cheung further said Lin was the owner of another Shantou entity called 華通 (which was acquired or to be acquired by Mr Lam) and both Lin and Cheung Ching Fan were nominated by Mr Lam to be the director of Richlink.  Mr Lam denied the same and said he did not know Lin.

69.  Mr Cheung testified that the production line was acquired by Mr Lam with a view that it would be used by華通.  However, the acquisition of華通did not materialize and the production line, according to him, was sold by a staff of Mr Lam called Mr Hon. 

70.  Mr Cheung explained the reason why he paid for the shortfall without asking Mr Lam for reimbursement was that he had been promised shareholding in Richlink (though he was not allotted any) and he regarded it as a business loss.

71.  I do not find that explanation to be credible.  If Mr Cheung had an interest in Richlink, he should be entitled to something from the sale proceeds of the production line (assuming that it was sold as he testified).  On the other hand, if he did not have any interest (in accordance with his evidence that the two shareholders were the nominees of Mr Lam), his payment of the shortfall is wholly inexplicable.

72.  Further, as submitted by Mr Chan, there is an element of inconsistency between his allegation that he, the Plaintiff and his daughter were only acting as agents for Mr Lam in respect of the receipt of the $3 million by the Plaintiff and the purchase of the production line from東 南亞 (中國) 制衣and his case that he had an interest in the business of Richlink.

73.  I had difficulty in understanding why Mr Lam would acquire a production line for華通before his acquisition of that company had been materialized.  And I fail to understand why Mr Lam had to nominate the daughter of Mr Cheung as a director of Richlink instead of Mr Cheung himself.  I also do not understand   why in the context of Mr Cheung’s version Mr Lam had to make the payment to the Plaintiff instead of Richlink.

74.  I do not believe Mr Cheung’s account in respect of the $3 million payment.

75.  As regards Mr Lam’s account, in substance he said the $3 million payment was given to the Plaintiff at the suggestion of Mr Cheung concerning Cheung Lap Ping’s demand for assistance in the acquisition of the production line.  The key issue is whether it was paid as the Defendant’s assistance to Cheung Lap Ping or, as testified by Mr Lam, that it was paid by the Defendant as advanced commission to the Plaintiff leaving it to the Plaintiff to provide such assistance.

76.  Unlike the earlier payments evidenced by the receipt of 14 June 2000, there was no receipt from the Plaintiff acknowledging that the $3 million was to be treated as advanced commission.

77.  There is no obligation on the Plaintiff to provide such assistance out of its own pocket under the Agreement.  On the other hand, it was also in the interest of the Plaintiff to procure the full payment of the purchase price.  As explained, Clause 3 of the Agreement provided that payment of the balance of the commission (other than the $3 million[3] already paid by then) was only payable after the full purchase price was received by the Defendant.  The balance of the commission, calculated in accordance with Clause 2, was RMB 12.75 million[4].  Even after deducting $3 million out of the balance, there would still be substantial financial incentive on the part of the Plaintiff to accept the proposal of advanced commission.

78.  Further, as the actual funding of the $3 million came from the Defendant, the Plaintiff did not need to resort to its own cashflow to finance the acquisition of the production line demanded by Cheung Lap Ping.

79.  Thus, I do not find the evidence of Mr Lam as regards the $3 million being paid by the Defendant and accepted by the Plaintiff as advanced commission to the Plaintiff as inherently implausible.

80.  In the end, it depends on whether I accept Mr Lam’s evidence in the light of the absence of independent supporting evidence and my rejection of Mr Cheung’s explanation about the nature of this payment.  The burden of proof rests upon the Defendant to establish that the $3 million was advanced commission payment.  Though I may draw adverse inference against the Plaintiff upon the rejection of Mr Cheung’s explanation, I cannot ignore other evidence relevant to the credibility of Mr Lam.

81.  Mr Ng submitted that Mr Lam is not a credible witness.  As mentioned, the Defendant had taken issues in the past as to the validity of the Agreement and contended that the Defendant was not bound by it.  In support of these pleas, Mr Lam said in his witness statement that he had no involvement in the business of the Defendant prior to the resignation of a Mr Pang as director in May 2000.  He said he did not hold any position in the Defendant prior to 16 October 2006.  But he said Mr Pang reported to him about the affairs of the Defendant from time to time as he was in control of the Golden Resources Development International Limited which indirectly held substantial shareholdings of the Defendant.  He said Mr Pang had informed him of the agency of the Plaintiff regarding the sale of the Shares but he had not informed him as regards the Agreement.  He said he could not find a board resolution authorizing Mr Pang to enter into the Agreement on behalf of the Defendant and he said it was illogical for the Defendant to agree to pay commission to the Plaintiff as the Shares were not held by the Defendant.

82.  However, he agreed that Mr Pang had informed him of the payments to the Plaintiff and for the 16 May 2000 payment of RMB 1 million Mr Lam personally gave the direction to a subsidiary to pay for the same (see para.5 of Mr Lam’s witness statement).  For the payment in June, as Mr Lam had signed the cheque personally, he could not deny knowledge of the same.  In order to support his then primary position that the Agreement was not binding on the Defendant, Mr Lam said these payments were made under mistake and misrepresentation.

83.  I have analysed the evidence as regards Mr Lam’s allegation of misrepresentations.  In the light of the wording of the receipt of 14 June 2000 and Mr Lam’s evidence as regards the payment, I find it disingenuous for him to suggest he had been misled as to nature of these payments.  He had gone through the trouble of asking his staff to explain why a sum in that amount had to be paid.  The receipt was prepared by his staff with an account for the commission already paid to the Plaintiff.  Mr Lam could not have been mistaken as to the nature of these payments.  I do not believe that Mr Lam would sign the cheque in June 2000 if he did not regard the Agreement as binding on the Defendant.  It would not take a great deal of effort to find out the terms of the Agreement since Mr Cheung was still employed within the Golden Resources group.  And I do not believe for a moment that Mr Lam (or his staff) could be ignorant of the fact that the Defendant was not the holder of the Shares.

84.  If he were as reluctant to provide further money to Mr Cheung in August 2000 as he had asked this court to believe, Mr Lam would have verified with the staff of the Defendant about the entitlement of the Plaintiff under the terms of the agency.  Yet Mr Lam said at para.7 of his witness statement that the August payment was made under the mistaken belief that the Defendant was the beneficial owner of the Shares and the Defendant was obliged to pay the further sum of $3 million as commission.

85.  Thus, the evidence of Mr Lam in his witness statement about this payment in August was that it was paid as something which the Defendant was obliged to pay under the terms of the agency.  This is different from his evidence in the witness box that it was paid by the Defendant as an expedient measure to comply with the demand of Cheung Lap Ping without any obligation on the part of the Defendant.  As a matter of fact, the Defendant was not obliged to pay any further sum to the Plaintiff at that stage under the terms of the Agreement.  By August 2000, the Defendant had already paid what it had to pay to the Plaintiff under Clause 4.  As explained above, I do not believe Mr Lam had no knowledge about the Agreement.  If he could not find a copy of it, he could have asked Mr Cheung for it.  Hence, what he said in his witness statement (which was adopted as his evidence in chief) cannot be true.

86.  If what he told the court under cross-examination was the truth, I do not understand why Mr Lam could not have set out in his witness statement his full story about this payment of $3 million in August 2000 in a straightforward manner.  Apart from the allegation as to the mistaken belief that the Defendant was obliged to pay the sum as commission, he said cryptically that payment was made on the misrepresentation by Mr Cheung that he could persuade Cheung Lap Ping to pay the balance of the purchase price.  Mr Lam did not set out his real case (as he did in the witness box under cross-examination) that Mr Cheung came to him to ask for further “運動費” to comply with the demand of Cheung Lap Ping and the Defendant did not want to be involved in such irregular transaction but instead agreed to pay the $3 million as additional advanced commission.

87.  Further, Mr Lam was unable to offer any satisfactory explanation why, unlike the payment in June, he did not ask for a receipt from the Plaintiff acknowledging the receipt of the $3 million payment in August as commission.

88.  Even though I reject Mr Cheung’s account as to the nature of the $3 million payment, it does not mean that the payment had to be by way of commission to the Plaintiff.  Mr Lam could have acceded to the demand of Cheung Lap Ping without asking the Plaintiff to accept the same as payment of commission.  As I said, the burden is on the Defendant to prove that the payment was commission.  For the reasons given, I do not find Mr Lam to be a reliable witness on this score.  I am not satisfied that the $3 million payment was by way of commission under the Agreement.

89.  Thus, my conclusion is that the disputed sums should not be taken into account in quantifying the outstanding amount of the commission payable under the Agreement.

90.  Given my reservations about the credibility of Mr Lam, I do not believe he had given the court a full picture of the circumstances under which the $3 million was paid in August.  I am not satisfied that the payment was made in reliance on a representation that upon such payment the Purchaser would pay the balance of the purchase price.  As Mr Lam acknowledged in his own evidence, such payment was irregular and probably tainted with illegality.  He knew he was taking a risk in making such payment.  Therefore I also reject the Defendant’s counterclaim in respect of this sum based on misrepresentation.

The conversion rates and the outcome of the trial

91.  I alluded to the difference between the parties as regards the RMB equivalence of the $3 million payment evidenced by the receipt of 14 June 2000 at footnotes 3 and 4 above.

92.  Neither party has addressed the court on this issue.  I see no reason why parties cannot sensibly agree on the same.

93.  It should be clear from what I have said that I will give judgment in favour of the Plaintiff at a sum to be worked out upon the resolution of the conversion rates.  The counterclaim will be dismissed.

94.  In the circumstances, I will direct the parties to file an agreed draft judgment for the approval of the court.  If the parties are unable to reach agreement on conversion rates, the matter will have to be argued at a hearing.

95.  I wish to hear parties on costs, in particular the basis of taxation in the light of the refusal of the Defendant to consider mediation and the other conducts of the Defendant.  I will direct that the matter be listed for a half-day hearing.  Parties shall file and serve skeleton submissions at least 5 days before the hearing.

[1] The Agreement was made in Chinese. There is no agreed translation and the parties, with the court’s approval, were contented to conduct the trial and make submissions based on the original language of the Agreement. I shall therefore produce the relevant clauses in Chinese.

[2] See para.11 of the Closing submissions.

[3] The receipt and the evidence produced by the parties established $3 million commission being paid by 14 June 2000. The Plaintiff treated this as equal to the payment of RMB 3 million in its pleadings and in the Closing Submissions and claimed for RMB 12.75 million as the balance. According to the Defendant’s pleaded case under Para.11 of the Amended Defence and Counterclaim, the $3 million should be converted to RMB 3,141,564.49 at the then prevailing exchange rates.

[4] If one is calculating in accordance with the exchange rates pleaded by the Defence, the balance of the commission was RMB 12,608,435.51.