KWAI TAK MING v. K.S. CAPITAL ONE LTD AND OTHERS

CACV 132/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 132 OF 2016

(ON APPEAL FROM HCA NO 679 of 2012)

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JUDGMENT

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Hon Lam VP:

The facts and the appeal

1. The Plaintiff was one of the co-owners of a shop premises at San Fung Avenue in Shek Wu Hui, Sheung Shui [“the Shop”] and the other two co-owners were his siblings.  At the material times, the Shop was let to a bank at the monthly rent of $88,000.  On 7 March 2012, he signed a preliminary sale and purchase agreement of 7 March 2012 and later signed a sale and purchase agreement on 23 March 2012 in respect of his interest in the Shop.  On the face of these agreements, the Plaintiff agreed to sell to the 1^st Defendant at the price of $5 million.

2. The Plaintiff did not complete under the agreements.  The Plaintiff said he entered into these agreements by reason of misrepresentations and/or undue influence.  He said the 3^rd Defendant befriended him and when he was in financial difficulties introduced him to the 2^nd Defendant (the sole director of the 1^st Defendant) who operated a finance company.  In the name of helping him, these defendants in breach of fiduciary duties towards him procured him to enter into these agreements and then took advantage of the same.  He also said the transactions constituted unconscionable dealings.  By this action, the Plaintiff sought to have the agreements rescinded or set aside.  He also claimed damages from the defendants.

3. By way of counterclaim, the 1^st Defendant sought specific performance of the sale and purchase agreement and damages.

4. The trial took place before Chung J in February and March 2016.  On 5 May 2016, the judge handed down a judgment finding in favour of the Plaintiff.  After analyzing the valuation evidence, the judge found that the market value of the interest of the Plaintiff in the Shop at the time of the agreements was between $9.75 million and $10.5 million.  He also found that the agreements did not truly reflect the nature of the transaction between the parties and what appeared in writing to be an outright sale was in truth a more complicated transaction.  He found that the nature of the transaction was a secured bridging loan (pending the agreement of the other co-owners to a proper bank mortgage) to enable the Plaintiff to clear his immediate debts and the Plaintiff entered into the agreements as a result of misrepresentations of the 2^nd and 3^rd Defendants. 

5. The judge granted a declaration that the Plaintiff was entitled to and did rescind the agreements.  He also granted an order setting aside these agreements.  He dismissed the counterclaim of the 1^st Defendant. 

6. The Defendants appealed against the judgment.  We heard the appeal on 15 March 2017.  We also permitted further written submissions to be filed after the transcript of 25 February 2016 was made available to the parties.  Counsel put in further submissions accordingly. 

7. The background to the making of the agreements and the disputes between the parties was set out in the judgment of 5 May 2016 at [3] to [14]. The Plaintiff and his two siblings were co-owners of the Shop, a property they inherited from their parents.  It was let out and the Plaintiff partly relied on his share of the rental income from the Shop for his living.  The Plaintiff worked as a security guard (earning only $8,000 to $9,500 per month) and he was always in debt.  He came to know the 3^rd Defendant in 2009 who was then working in a finance company.  Since then, the 3^rd Defendant had advised the Plaintiff over the latter’s financial difficulties in 2010. 

8. In 2012, the Plaintiff was in financial trouble again.  He had borrowed from several finance companies and mortgaged his interest in the Shop to a company called Easy Fortune Property Limited [“Easy Fortune”].  He had difficulties in servicing that mortgage and meeting his liabilities to other lenders.  At the same time, he did not want his siblings to know about his problems.  He approached the 3^rd Defendant who introduced him to the 2^nd Defendant.  The 3^rd Defendant and the 2^nd Defendant worked in a finance consultancy company called Keystone Financial Consultancy Limited [“Keystone”]. 

9. There were two meetings in February 2012 (which the judge referred to as the UCC meeting and the KCC meeting respectively).  The first meeting (the UCC meeting) was between the Plaintiff and the 3^rd Defendant. At that meeting, the Plaintiff told the 3^rd Defendant details of his finance.  Then a second meeting (the KCC meeting) was arranged by the 3^rd Defendant at which the Plaintiff, the 2^nd and 3^rd Defendants and another person called Leung (who was said to be the boss of Keystone) were present. 

10. The parties disagreed on what had been said at the meetings.  The judge accepted the evidence of the Plaintiff[1].  He found that the 3^rd Defendant had offered several possible solutions to the Plaintiff at the UCC meeting. One possible solution was to obtain private finance from the boss in Keystone to pay off the most onerous loan first and a company would be formed to hold his interest in the Shop for one year.  During that one year, the Plaintiff could have time to persuade his siblings to do a bank mortgage of the Shop and “buy-back” the Plaintiff’s interest from that company.

11. The 3^rd Defendant emailed Standard Chartered Bank about the valuation of the Shop.  On 22 February 2012, the Bank gave a valuation of $21 million for the Shop.  The judge found that valuation was done from a mortgagee’s point of view and it was too low[2].

12. At the KCC meeting, on the findings of the judge (based on the evidence of the Plaintiff, which he accepted[3] in preference to the evidence from the defence witnesses), Ng and Leung told the Plaintiff that a company could “purchase” his interest in the Shop which could be “bought back” within one year.  During that one-year period, the Plaintiff could persuade his siblings to jointly mortgage the Shop (the whole Shop as opposed to the Plaintiff’s 1/3 interest in it) with a bank at a much lower interest rate.  The arrangement was in the nature of a one-year “bridging” loan with the appearance of a “sale”[4].

13. Further information was procured after the two meetings.  The Plaintiff provided a copy of his personal credit report of 28 February 2012.  There was correspondence between Keystone and a surveyor in early March concerning the valuation of the the Plaintiff’s interest in the Shop.  The valuation was at $4.93 million as at 16 March 2012. 

14. Regarding the valuation of the Shop, the Plaintiff’s evidence was that when the 3^rd Defendant told him about the valuation from the Standard Chartered Bank on 7 March, his immediate reaction was that it could not be that low as a shop next door was sold at the end of 2010 at $38 million and someone had offered $45 million for the Shop[5]. 

15. The judge rejected the evidence of the defence that in between the KCC meeting and 7 March 2012 the Plaintiff telephoned the 3^rd Defendant asking if he or his friends would be interested in purchasing his interest in the Shop and as a result of which the 3^rd Defendant procured the purchase of the same at $5 million with funding from them and their relatives[6].  Instead, the judge accepted the evidence of the Plaintiff that in early March he was rather desperate as his loan repayments were due and he therefore entered into the arrangement as proposed by the Defendants[7].  In other words, the judge found that the agreements were executed by the Plaintiff pursuant to the arrangement discussed at the KCC meeting.

16. On 7 March 2012, the Plaintiff signed a preliminary sale and purchase agreement at the office of Keystone.  Before the signing of that agreement, according to the Plaintiff’s evidence, the 2^nd Defendant explained to him that the so-called sale was to assist him to solve his immediate financial difficulties by giving him a one-year interim period and he could continue to collect his portion of the rent from the Shop.  The 2^nd Defendant reiterated what had been discussed at KCC and explained that the Plaintiff and his siblings could obtain a bank mortgage at a lower interest rate to “buy-back” the 1/3 interest.  The Plaintiff did raise a query regarding the “buy-back” price and the 2^nd Defendant told him that they only intend to help him and did not intend to make a profit, and the price would depend on their costs in the transaction[8]. 

17. On its face, the agreement recorded a sale of the Plaintiff’s interest in the Shop to the 1^st Defendant at the price of $5 million and completion were to take place on or before 30 April 2012.  A deposit of $100,000 was paid, part of which was used to pay a mortgage payment of $36,906 due to Easy Fortune.  

18. The Plaintiff signed the sale and purchase agreement on 23 March 2012 at a solicitor’s office.  The solicitor was arranged by the 2^nd and 3^rd Defendants[9].  Before doing so, the 2^nd Defendant asked the Plaintiff to meet him at a coffee shop.  At the coffee shop, the 2^nd Defendant produced two documents for the Plaintiff to sign.  The documents were described by the judge at [54] and [55] of the judgment.  The Plaintiff understood the documents to give effect to what had previously been discussed regarding his collection of the rent during the one-year period and he signed the same.  We shall come back to these documents as one of the grounds of appeal related to them. 

19. The Plaintiff then went to the office of the solicitor to sign the sale and purchase agreement.  Before signing the sale and purchase agreement, the Plaintiff raised query about the “buy-back” agreement and the solicitor told him to check with the 2^nd Defendant.  Later, the 3^rd Defendant told him that the “buy-back” agreement would be signed after completion[10]. 

20. Soon after the signing of the agreement of 23 March 2012, the siblings of the Plaintiff came to know of the same.  The Plaintiff decided to cancel the transaction.  On 11 April, the 2^nd Defendant told the Plaintiff he had to pay compensation in the sum of $3 million.  Further negotiations were not fruitful and the transaction was not completed. 

21. Mr Wong SC (appearing with Mr Phang) represented the Defendants in the appeal.  Shortly before the hearing, the Notice of Appeal was substantially re-amended on 20 February 2017.  As there is no complaint from Mr Leung SC (appearing together with Mr Ho and Mr Lee) for the Plaintiff, and the appeal has been able to proceed without disruption, I am not going to comment on the timing of such late amendment in this judgment apart from reiterating that such a course is undesirable as explained in earlier judgments: see To Pui Kui v Ng Kwok Piu CACV 281 of 2012, 21 Aug 2014.

The counterclaim for specific performance of the agreements as an outright sale

22. One of the new grounds of appeal was that the judge erred in holding that the ultimate factual issue was whether the agreements truly reflect the nature of the transaction[11].  Mr Wong submitted that this was not a proper question in a claim for misrepresentation.

23. With respect, I cannot agree with Mr Wong.  Counsel apparently overlooked that quite apart from the claim of the Plaintiff, there is a counterclaim by the 1^st Defendant for specific performance and damages.  As I see it, for all practical purposes, the counterclaim is more important than the claim in this action.  The true nature of the agreement between the parties had been put into issue in the pleadings.  At paragraph 60 of the Amended Statement of Claim, the Plaintiff pleaded that the sale and purchase agreement was not meant to be an outright sale and the Plaintiff could buy back at a price acceptable to them later.  Further, at paragraph 11B of the Re-amended Defence to Amended Counterclaim, the Plaintiff pleaded the overall scheme as a Global Agreement akin to a secured loan transaction with documentations vesting the title of the 1/3 interest in the 1^st Defendant by way of security for the repayment of the loan with reasonable interest and costs.

24. As mentioned above, in the Plaintiff’s witness statement, there was evidence to the effect that the nature of the transaction was a bridging loan.  When the case came on for trial, trial counsel for the Plaintiff opened the case highlighting that the transaction was in the nature of a bridging loan.  In this connection, I would refer to p.12-14 of the transcript of the hearing on 25 February 2016, the first day of the trial:

“ COURT: All right. I want to carry on with this discussion because it seems to be important to your client’s case.

MR HO: Yes.

COURT: Now, this deal, which the other side say is an outright sale, nothing else...

MR HO: Yes.

COURT: ...it seems that your client doesn’t quite agree with that, does he?

MR HO: No, he doesn’t...

COURT: He doesn’t say -- he disagrees that it’s an outright sale.

MR HO: He disagree it is an outright sale. This...

COURT: Yes. What, essentially, was it according to him?

MR HO: According to him, it’s that this sale of the property to the other side would only be temporary and he would have a right to buy back within a year time. But now the other side renege on this promise.

COURT: Yes, but on your client’s own case, leaving aside whether or not they kept their promise or whether they’re honest or whether they truly wanted that, on your client’s own case, what essentially would that amount to? So a sale and purchase with an option to buy back after 12 months, how would you describe that?

MR HO: I would describe that in substance -- first of all, I would have two responses. The first response is that, in substance, this can be -- in substance, this was in fact a secure loan transaction, this was in fact and in truth a substantive loan transaction -- in fact, in truth and substance, a secure loan transaction.

But of course, your Lordship need to take into account the totality of circumstances and decide at the end of the day whether this is indeed so. Yes, but this is the plaintiff’s case.

The second response is that we would submit to the court that, in fact, although the other side has made such financial advice to my client, that is a first sale and then subject to a right to buy back, but in fact, the way they engineered this financial plan and the implementation was in fact very risky, it’s a very risky route that my client will take. Why I’m saying so, because the other side only asked my client to sign a sale and purchase agreement, but without putting into writing that buy-back agreement.

And if that is the case, then - and also without agreeing exactly what is the buy-back price - then if that is the case, after my client has signed the provisional sale and purchase agreement, he would expose himself to a very, very high risk, because even after one year time, if he improve his relationship with his family members but then he go to the other side, “I want to buy back the property,” then the other side can just ask for a price as high as they wish for. And if that is the case, my client can be extract a very exorbitant sum of money by them.

Of course, I would invite your Lordship to look at the relevant facts which -- relevant facts embedded into the background circumstances.

COURT: I’m sorry, I got to -- I’m sorry I’m hammering on this. I’ve got to get this quite clear in my mind because otherwise I may go down the wrong path.

MR HO: Yes.

COURT: So far as the nature of this deal was concerned, there is a huge factual dispute, is that right?

MR HO: Yes.

COURT: On your case, it is not an outright sale but a sale with a buy-back, which you would describe as essentially a secured loan transaction.

MR HO: Yes.

COURT: On the part of the other side, on their case, it’s an outright sale.

MR HO: Yes.

COURT: Now, after hearing the evidence, I would need to make, among other things, a factual finding over that.

MR HO: Yes.

COURT: So barring rather exceptional circumstance, I will have to come down in favour of one party or the other.

MR HO: Exactly. ”

25. Mr Wong, in the supplemental submissions of 30 March 2017, contended that the Plaintiff had conceded that the arrangement was a sale with an option to buy back.  In my judgment, having read the transcript carefully, I do not consider that the Plaintiff had made that concession though sale with an option to buy back was one of the several ways in which the Plaintiff had put his case before the judge.  Counsel for the Plaintiff had never abandoned another limb of his case that the arrangement was a bridging loan with security. This is borne out by reference to the questions put to the witnesses at the trial[12] and the closing submissions[13].  On the other hand, the Defendants steadfastly maintained that the transaction was an outright sale. 

26. Since there was a dispute on the true nature of the transaction, and the 1^st Defendant sought specific performance of the agreements as purchaser in an outright sale, the court must first resolve this issue before examining other issues.  As held by Godfrey JA in NG Shou Chun v Hung Chun San [1994] 1 HKC 155 at p.158I:

“ As to the defendant’s second point, he is right in contending that equity looks at the substance of the transaction, not the form. There are many cases in the books where a sale, with a collateral agreement for repurchase by the vendor within a stipulated time, has been held by the court to be, in essence, a transaction by way of mortgage.”

27. Similar proposition can be found at Cousins, The Law of Mortgages 3^rd Edn at paragraph 1-04:

“ In equity, it is a matter of substance, not of form, whether a transaction creates a security or transfers absolute ownership. If the true purpose of the transaction is to create a security, it will not assist the mortgagee to disguise it as a conditional sale or a conveyance. It is possible to demonstrate the sham nature of a written agreement masking its true nature by providing extrinsic evidence to that effect, such evidence being admissible in court. … Where an agreement was intended only to create a security, that fact may be proved afterwards by parol evidence even though it contradicts the plain language of a deed ...”

28. Thus, in my judgment, the judge was entirely correct in holding that he should resolve this issue.  I shall come back to the analysis on misrepresentation later.  However, irrespective of the merit on the case of misrepresentation, in my judgment the true nature of the transaction is clearly an issue which the court must resolve in this case.

29. As I have said, the Judge did resolve that issue.  His finding was that the transaction was not an outright sale.  Instead, he found that the transaction was in truth an arrangement in the nature of a one-year “bridging” loan with the appearance of a “sale”, see [15], [33], [37], [61] and [66] of the judgment. 

30. I must however part company with the judge in treating the issue as a question of fact.  In the recent judgment of Lord Millett NPJ in Tang Ying Loi v Tang Ying Yip FACV 9 of 2016, 8 Feb 2017, His Lordship stressed at [18] and [19] that the characterization of a transaction is a question of law, not a question of fact.  It is for the court to characterize a transaction, not the parties.

31. In the Re-amended Notice of Appeal, Mr Wong on behalf of the Defendants contended that the judge erred in several respects in making such finding:

(a) The judge misunderstood the evidence relating to two documents, Ground 2(a);

(b) The judge did not pay proper regard to the inconsistencies of the Plaintiff’s case with letters before action and pleadings, Ground 2(b);

(c) The judge did not pay proper regard to the education and experience of the Plaintiff in financial matters, Ground 2(c);

(d) The judge misunderstood that the Plaintiff did not advance a case based on binding “buy-back” agreement, Ground 2(d); and

(e) The judge misdirected himself on the case of misrepresentation, Grounds 3(b), 4, 5 and 6.

32. With respect, the arguments pertaining to how the Plaintiff’s case had been advanced by his lawyers in the letter before action or in pleadings cannot take Mr Wong’s case very far.  Once it is accepted that the characterization of a transaction is a question of law instead of the label given to it by a party, there is no question of the different characterization of the case by lawyers in letter before action or in pleadings pre-empting the court from determining what is the correct characterization of a transaction in light of the relevant facts and surrounding circumstances.  I accept that the way a party’s case had been put in the past can sometimes cast doubt on his credibility on the factual evidence.  However, in the present case, the so-called inconsistencies relied upon by Mr Wong are mostly forensic analysis or formulation of the legal causes of action by lawyers.  Similar arguments were labored before the judge and he was not impressed by it in the assessment of credibility: see [68] to [72] of the judgment.  I do not regard the judge as plainly wrong in so concluding.

33. As I have already explained, the case as to the true nature of the transaction was pleaded, albeit other alternatives were also pleaded by the Plaintiff’s lawyers.  The issue had been raised and at the trial counsel referred to the case of bridging loan in the opening and closing submissions. It is not a situation where the Defendants had been taken by surprise.     

34. I shall discuss the misrepresentation claims later.  But irrespective of the merit of those claims, there is no legal basis for suggesting that the finding on the nature of the transaction should depend on how the case of misrepresentation had been formulated or put at the trial. 

35. The judge had taken the educational background and experience of the Plaintiff on board in assessing credibility, see [73] and there is no proper basis for this Court to intervene in his assessment on credibility and weight by reference to these matters.

36. As regards the Plaintiff’s case on the “buy-back” agreement, Mr Wong asked this Court to consider paragraph 11B of the Amended Reply and Defence to Counterclaim and paragraphs 45, 49 and 50 of the Plaintiff’s closing submissions.  In light of those references, Mr Wong submitted that the judge erred at [74] of the judgment when he said that the Plaintiff never advanced a case that the “buy-back” agreement was a binding contract. 

37. I have read those paragraphs carefully.  The Plaintiff tried to put forward a case of repudiation based on a global arrangement and the denial of the right of buy-back by the Defendants.  In the Amended Reply and Defence to Counterclaim, the plea was put forward in the context of resisting the counter-claim of specific performance by the 1^st Defendant.  It is fair to say that in the closing submissions, counsel for the Plaintiff did not specify clearly the context in which the case of wrongful repudiation was put forward as in paragraph 44, he submitted that the court was entitled and should set aside the agreements or otherwise deny specific performance of the same basing on various grounds, one of which was wrongful repudiation.

38. I am prepared to accept that the argument on wrongful repudiation could have been put forward with greater clarity.  Putting the concepts of repudiation together with the setting aside of agreements is not very helpful. Lumping these in the same compartment with equitable considerations for refusal of specific performance led to further confusions.  However, criticism on the conduct of the case by lawyer is one thing.  Trying to gain mileage out of unclear and unhelpful legal formulation of the case by converting the same into a challenge on the credibility of the Plaintiff is another thing.  Though in one sense it can be said that the running of a case of wrongful repudiation implicitly presupposed that the buy-back agreement is binding (and to that extent, the judge might have been too sweeping in his comment at [74] of the judgment, though he was correct in saying that certainty of the terms of the “buy-back” arrangement need not be part of the Plaintiff’s case as it was run before him), I simply cannot see how the Defendants could successfully rely on this as an attack on the Plaintiff’s credibility. 

39. As regards the evidence in respect of the two documents, the judge considered the same at [53] to [65] of the judgment.  The documents were prepared by the Defendants and the Plaintiff was asked to sign the same at a coffee shop before executing the formal sale and purchase agreement on 23 March 2012. 

40. The first document was described by the judge as the rent collection note.  The second document was described by the judge as the debts repayment note.  The judge considered that these were unusual documents for a normal conveyancing transaction.  He identified these unusual features:

(a)  With the passing of beneficial interest upon completion, the purchaser would collect the rent deriving from such interest as opposed to the vendor collecting rent on behalf of the purchaser.  By the rent collection note, it was envisaged that the Plaintiff would collect rent for the 1^st Defendant after completion for a period of 14 months;

(b)   In a normal conveyancing transaction, the vendor was free to use the sale proceeds and there was no need for the vendor to acknowledge to the purchaser how the same was to be spent.  By the debts repayment note, after using the proceeds to clear the mortgage (which was not exceptional), a sum of $411,000 was to be paid by cheque to the Plaintiff whilst the balance was to be used to pay off some personal debts of the Plaintiff due to 2 financial institutions.

41. At [59] of the judgment, the judge drew the inference that the $411,000 was actually for the equivalent of the 14-month rent (in the sum of $410,662) to the 1^st Defendant which had to be repaid to the latter after the 14-month period.  The judge further inferred that the sum was in the nature of a loan from the 1^st Defendant though purportedly paid as part of the purchase price.  The judge further regarded this conclusion as supporting the case that the transaction was not an outright sale and the purchase price was in substance a loan.

42. Mr Wong submitted that the judge had misunderstood the evidence regarding the purpose of these documents.  He accepted that the $411,000 was referable to the 14-month rentals.  He pointed out that the evidence was that the sum was to be paid to the 1^st Defendant in advance (as opposed to being paid at the end of that period by way of a post-dated cheque) and it was an arrangement to conceal the sale from the siblings of the Plaintiff for that period.  Hence, these documents were neutral in terms of assessing whether the transaction was a loan or an outright sale. 

43. I accept that there is no evidence to support the judge’s supposition that the 14-month rental was to be paid by the Plaintiff to the 1^st Defendant by way of a post-dated cheque.  With respect, the judge appeared to have overlooked the evidence about the $411,000 being deducted out of the purchase price (thus payable to the 1^st Defendant immediately upon completion).  Further, the unusual nature of these arrangements was explicable by the undisputed fact that “the sale” was only in respect of the 1/3 interest of the Plaintiff in the Shop and he did not want to disclose the transaction to his siblings immediately.  Thus, there was a need for the special arrangement regarding the collection of rent.  I agree with Mr Wong that these arrangements by themselves were not probative in establishing the true nature of the whole transaction.

44. At the same time, Mr Leung drew our attention to the references in these two documents to “借款人” (meaning lender).  Though viewed in isolation this may not be a significant feature, when considered against the whole of the evidence I am of the view that it tends to reinforce the Plaintiff’s case that the true nature of the transaction was a bridging loan with security.

45. Further, the judge had primarily come to his finding as the true nature of the transaction by reference to his assessment of the evidence of the witnesses on the discussions at the UCC meeting and the KCC meeting.  Thus at [52] of the judgment, before he embarked on the consideration of these two documents, he reached the conclusion that the Plaintiff’s case on the nature of the transaction should be preferred.

46. In his oral and supplemental submissions, Mr Wong advanced the following additional arguments to persuade us to overturn the judge’s finding as to the true nature of the transaction:

(a) If it was a loan, the 1^st Defendant should not be entitled to the rent after the completion as provided for in the two documents;

(b) The “buy-back” right was pleaded at paragraph 25(5) of the Amended Statement of Claim as a right of first priority rather than an absolute right.  The Plaintiff or the siblings could opt for not exercising the right if the Shop falls in value;

(c) There was a suggestion from the 2^nd Defendant that the “buy-back” could have taken the form of buying the shares of the 1^st Defendant as opposed to the buy-back of the 1/3 interest in the Shop;

(d) There was no discussion or agreement on interest;

(e) The unilateral understanding of the Plaintiff could not change the true character of the transaction.   

47. Due to the way in which the case was argued before the judge, these were not points fully canvassed at the trial.  Mr Wong’s predecessor did not advance these submissions in his closing submissions and the judge did not address the same in the judgment.  At the trial, counsel for the Defendants adamantly maintained that the transaction was an outright sale.  The judge clearly rejected the case of outright sale.    

48. In the appeal, Mr Wong submitted that the transaction was a sale though after its completion the parties could negotiate the buy-back having regard to the realities of the situation such as market conditions and the difficulty of selling the 1/3 interest to an outsider[14].  Counsel did not dispute there had been discussions on buy-back though he submitted that the discussions had not resulted in any enforceable promise or representations.  Putting the Plaintiff’s case at its highest, counsel said, the alleged representations were merely some imprecise or vague expressions of an amenability to a possible future transaction with the timing or the price of the buy-back remain uncertain[15]. 

49. In my judgment, given the factual background, there are several possible characterization of the arrangements between the parties.  The secured bridging loan (as one alternative advocated by the Plaintiff) and an outright sale (as advocated by the 1^st Defendant) are at the two extremes of the spectrum.  In the middle, there was also the possibility of an arrangement for a sale with an option to buy-back.  However, Mr Wong is correct in his submission that this possibility cannot be the correct analysis if the price and duration for the exercise of the option is uncertain.  A variant of that possibility is that the parties were aiming to achieve that but they have not quite reached complete agreement on the terms of the option when the agreements were executed.  On that scenario, if the option was intended by the parties to be an essential element of the whole bargain, the transaction remains too uncertain to constitute a binding contract in law irrespective of the execution of the written agreements.  On the other hand, if the parties were contented to have the sale and purchase going ahead even without reaching agreement on the option, the sale and purchase would be an outright sale.

50. The judge accepted the evidence of the Plaintiff as regards the genesis of the transaction.  On such evidence, I have no doubt that he was correct in rejecting the case of outright sale.  Whilst there is scope for argument as to the terms of the buy-back (which I shall discuss below), it cannot be denied that the idea of buy-back was an integral part of the discussions leading to the signing of the agreements.  The transaction had never been proposed to the Plaintiff by way of a simple sale and purchase.  The purpose of the “sale” to the 1^st Defendant was explained to the Plaintiff by the 2^nd and 3^rd Defendants as giving him one year’s time to persuade his siblings to agree to do a bank mortgage (with a lower interest rate).  It was envisaged that the 1/3 interest would be bought back at a price which, the 2^nd Defendant assured the Plaintiff would not be unreasonable and would depend on the costs of the transaction to the 1^st Defendant.  

51. Mr Wong relied on the discussion of the Plaintiff with his friend at DBS Bank (who had alerted the Plaintiff to the risk of signing the agreements) and the intimation by the solicitor to the Plaintiff that he had no instructions about the buy-back option.  The fact that the Plaintiff was willing to sign the agreements notwithstanding such information, counsel said, point to the conclusion that the Plaintiff decided to proceed with the transaction as an outright sale. 

52. With respect I cannot accept this argument.  The evidence was that at that time the Plaintiff was subject to immense financial pressure and he received the assurance from the 3^rd Defendant that the buy-back option would be signed after completion.  With such background, it was open to the judge to conclude that the transaction was not an outright sale notwithstanding the signing of the agreements.

53. It is correct that the price of the “buy-back” had not been specified precisely.  However, there is sufficient evidential basis for holding that the time frame for the “buy-back” would be one year.  Coupled with the assurance from the 2^nd Defendant on the reasonableness of the price, even if such assurance may not be sufficiently certain to constitute an enforceable contractual obligation, it can operate as the basis for a common intention that the “buy-back” constituted an integral element in the whole transaction.

54. A very telling piece of evidence rebutting the suggestion that this was an outright sale was the Plaintiff’s reaction towards the SCB valuation.  He was therefore aware that the price of his 1/3 interest was much higher than $5 million.  Had the transaction with the 1^st Defendant been proceeded as an outright sale, it would be inexplicable that the Plaintiff did not demand a higher price. 

55. In respect of the additional points advanced by Mr Wong set out at [46] above, none of them could assist the Defendants in showing that the transaction was an outright sale.  At the highest, they only cast doubt on the proposition that the transaction was in truth a loan as opposed to a sale with an option to buy-back.  They are all entirely consistent with the buy-back element being an integral feature of the whole transaction.  

56. I therefore uphold the judge’s finding that this was not an outright sale.

57. Once I reach this conclusion, the judge must also be correct in refusing to grant relief on the Counterclaim which was put forward on the basis of outright sale.  It does not matter whether the transaction was held to be void for uncertainty (due to the integral buy-back element not yet agreed upon) or held to be in truth a loan transaction. 

58. For the sake of completeness, I will also examine Mr Wong’s additional points.  On the entitlement of the 1^st Defendant to rental income after completion, the Plaintiff had given an explanation when he was cross-examined at the trial[16].  He said he regarded it as pre-payment of interest.  It is a plausible explanation which the judge could accept. 

59. On the criticism as to how the case on buy-back was pleaded at paragraph 25(5) of the Amended Statement of Claim, I would repeat my comments above on the extent to which one can rely on the pleadings in the present case to discredit the evidence of the Plaintiff.  Paragraph 25(5) was only a plea as to the representation from the 3^rd Defendant.  It should not be considered in isolation. 

60. I acknowledge that if the transaction was a loan, the Plaintiff should be subject to an obligation to repay as opposed to having a right to choose whether to repay.  We have not been referred to any cross-examination in this regard at the trial and apparently the point was not canvassed before the judge.  It was likely that nobody has given thoughts to this as everyone had treated the transaction as a loan as evidenced by the references to “借款人” in the two documents signed before the execution of the formal agreement.  Thus, if the judge’s finding on the true nature of the transaction is upheld, the Plaintiff would have an obligation to repay whatever sums that had been advanced to him by the 1^st Defendant.

61. Like the sale agreements, the proposal of acquisition of the shares of the 1^st Defendant as opposed to the 1/3 interest in the Shop in order to save stamp duty only dealt with the mechanism for re-vesting the title to the Plaintiff or his siblings.  I cannot see how this could affect the correct assessment on the true nature of the transaction by reference to its substance.

62. Regarding the lack of discussion on interests, it is not absolutely essential.  As a matter of law, equity would provide for interest to be paid upon redemption, see Al-wazir v Islamic Press Agency Inc [2002] 2 P &CR 157.  Furthermore, the evidence of the Plaintiff suggested that the rental income as one head of interest.  He also regarded it acceptable to adopt the assurance of the 2^nd Defendant to repay after one year at around $6 million or so[17].  If the true nature was a loan, the payment over and above the loan amount would be characterized as interest.

63. In short, I do not regard any of the additional points as real obstacles to the holding of the judge that the true nature of the transaction was a secured bridging loan.  

64. Hence, I agree with the judge that the counterclaim should be dismissed.

The claim of misrepresentation

65. Turning now to the claim of the Plaintiff, the judge gave judgment in favour of the Plaintiff on the sole basis of misrepresentation and he did not address the other causes of action advanced by the Plaintiff. 

66. The judge’s finding of misrepresentation was based on his acceptance of the Plaintiff’s evidence and a finding that the Plaintiff entered into the written agreements “as a result of the misrepresentations of [the 2^nd and 3^rd Defendants] to the effect they were merely in the nature of a secured ‘bridging’ loan (pending the agreement of the other co-owners … to obtain a proper bank mortgage) to enable the Plaintiff to clear his personal (gambling) loans”[18] and “the defendants misled him into believing the said agreements were intended for purpose A, when in fact they were intended for purpose B”[19].

67. In other words, the judge found that there was a misrepresentation as to the true nature of the agreements[20].  

68. As mentioned above, the true nature of a transaction is ultimately a matter of law.  Likewise, the true effects of the agreements are also ultimately matters of law.  However, before reaching the ultimate answer, question of facts are also involved.  Hence, representations as to the nature of the transaction and purpose and effect of a document can also be regarded as statement of mixed law and fact and, as such, actionable.  Representation of law can sometimes be interpreted as representation of opinion presently held by the representor, again actionable as such, see Chitty on Contracts 32^nd paragraph 7-016. 

69. The learned editor went further.  Based on Pankhania v Hackney LBC [2002] EWHC 2441 (Ch), it was stated that the distinction between statements or law and statements of fact is no longer maintainable and that even an incorrect statement of an abstract proposition of law may amount to a misrepresentation unless it is apparent that all that is being offered is an opinion without implication that the speaker has reasonable grounds for that opinion.  There is also a discussion of the relevant developments at Cartwright, Misrepresentation, Mistake & Non-Disclosure, 4^th Edn, paragraphs 3-20 to 3-41.  As we shall see below, it is not necessary for us to explore such developments in this judgment.

70. However, as far as representation on intention is concerned, the judge did not state explicitly what was purpose A and what was purpose B.  Mr Leung read the judgment as holding that there was a misrepresentation of the present intention on the part of the Defendants to honour the buy-back promise, as pleaded in paragraph 83 of the Amended Statement of Claim.  Counsel submitted there is no conceptual difficulty for a promise to be treated as statement of intention as actionable misrepresentation, citing the judgment of Lord Wilberforce in British Airways Board v Taylor [1976] 1 WLR 13. 

71. In that case, Lord Wilberforce said at p.17D:

“ My Lords, the distinction in law between a promise as to future action, which may be broken or kept, and a statement as to existing fact, which may be true or false, is clear enough. There may be inherent in a promise an implied statement as to a fact, and where this is really the case, the court can attach appropriate consequences to any falsity in, or recklessness in the making of, that statement. Everyone is familiar with the proposition that a statement of intention may itself be a statement of fact and so capable of being true or false. But this proposition should be used as a general solvent to transform the one type of assurance with another: the distinction is a real one and requires to be respected …”

72. His Lordship further highlighted at p.18C that it is the meaning of the statements which they are likely to bear to the person to whom they are addressed that matters, not the meaning which they might bear to a trained legal mind.  The approach of McKenna J in the Court of Appeal in Reg v Sunair Holidays Ltd [1973] 1 WLR 1105 at 1109 was approved by the House of Lords.  If the court is satisfied that the person who makes the forecast implies that he now believes that his prediction will come true or that he has the means of bringing it to pass, it would be a representation which is actionable. 

73. Mr Wong did not dispute these as general propositions.  He referred to Grubb & Furmston, the Law of Contract 4^th Edn, at paragraph 4.33 regarding the distinction a representation and a contractual promise alluded to by Lord Wilberforce.  In that paragraph, the learned editors postulated that the line for such distinction is drawn by an objective assessment of what was said or done by the person who is said to have made it and the likely effect of that on the person to whom it was made, a test taken from Kingscroft v Nissan [1999] 1 Lloyd’s Rep IR 603 at 627.  At footnote 21, it was further stated that it is a question of fact in each case.    

74. However, Mr Wong submitted that the discussion on buy-back option had not reached a stage where one can characterize the same as a promise.  At its highest, counsel said, there were only some imprecise or vague expressions of an amenability to a possible future transaction.  There was no consensus or agreement as to the timing or the price of the possible buy-back.  Hence, the alleged representations could not have amounted to statements of a settled intention since they lacked the necessary quality of certainty. 

75. Mr Leung, on the other hand, submitted that the requirement of certainty for an actionable representation is less stringent than that for an enforceable contract.  All that is required is that the representation must have an objectively certain meaning.  A degree of variance can be tolerated.  He referred us to MacDonal Eggers, Deceit the lie of the Law (2009) paragraph 3.4 and Hill v Citadel Insurance Co Ltd [1997] CLC 579 at 581-2.

76. At the hearing before us, Mr Wong quite properly accepted that the requirement of certainty can be less stringent in respect of an actionable representation.  Still it must have an objectively certain meaning.

77. In my judgment, in order to demonstrate that the statements would be taken seriously and relied upon, they must have an objectively certain or verifiable meaning.  This has to be determined in the context of the relevant discussion between the parties, see Cartwright, Misrepresentation, Mistake & Non-Disclosure, 4^th Edn, paragraph 3-14. 

78. Do the representations have any objectively certain or verifiable meaning? In my judgment, counsel focused too narrowly on the lack of certainty as to the details for the so-called buy-back promise. With respect, the judge’s finding on the meaning of the representations was much broader.  As discussed above, the judge found that the real nature of the transaction was a secured bridging loan and that these agreements were executed as part of the mechanism for implementing the secured loan transaction.  This was the “purpose A” referred to at [71(1)] of the judgment.  And the falsity of the representations lies in the concealed intention on the part of the Defendants to enforce the agreements as an outright sale.  That was the “purpose B”.  On such analysis, there was no need to have certainty as to the details for the buy-back option before one can give an objectively certain meaning to the representations.

79. One can find some clue to such approach of the judge from the elucidation of the Plaintiff’s opening at p.17 to 18 of the transcript for 25 February 2016 (which led to the amendment of the Statement of Claim):

“ COURT: Now, what’s happening here in our case, according to your client’s factual version, what happened?  So he’s been told, “Well, look, there’s not going to be an outright sale, there’s going to be a sort of helping you out sort of, you know, friend to friend refinance and we’re going to pay you the money, or the people behind us, the investors behind us are going to pay over the money.  You will have the 12 months, come back, in the meantime talk to your - whatever, your sister, your brother or whatever, and if you manage to come up with a proper bank mortgage, you will be able to pay off us and peace forever”. 

MR HO: Yes, if...

COURT: Peace forever.

MR HO: If everything was...

COURT: So that as it turned out, it was, in the instance, not in such manner, right.  To put it rather crudely, it’s a trap.  They never intended to give him this buy-back and now they changed their story and said, “Sorry, no, we never promised you that, it’s an outright sale, so either you enter into that deal or we’re going to sue you”.  That’s your client’s story.

MR HO: Exactly, exactly.  So if that is the ultimate finding, we’re already home and dry.  Yes, we...

COURT: Yes, but I want to get from you what exactly is your case so far as the law is concerned.  You keep on using this rather wonderful word of ‘fiduciary’.

MR HO: Yes, my Lord, if...

COURT: I will say, well, in a more extreme case, one would call it, that’s a conman, that’s a cheat.

MR HO: My Lord, yes, I now see that -- what you are driving at.  My Lord, I do apologise for that, for my being slow in picking up your Lordship’s point.  But my Lord, if that is the case, I would then invite your Lordship that to pay attention to the fact that we have also pleaded unconscionable dealing.

COURT: Yes.

MR HO: Yes, because for unconscionable dealing...

COURT: How many causes of action have you pleaded, actually?

MR HO: We have pleaded three...

COURT: Because Mr Pao seems to think that you have abandoned your misrepresentation case.  I don’t know whether you got that there or -- in the first place.  You tell me.

MR HO: My Lord, in my pleadings, in my statement of claim, for that misrepresentation claim, that misrepresentation would only be confined to a narrow part of -- confined to a narrow part -- confined to a part of the conversations between my client and the 3rd defendant.  First of all, my Lord...

MR PAO: I would be grateful at this juncture, if I may interject, for my learned friend to clarify whether or not he intends to rely on that because it’s clearly part of his pleaded case, although it doesn’t reflect in his opening.

COURT: His opening, yes.

MR PAO: So it would save time in the course of the trial for my learned friend to identify those matters which are no longer relied upon, and therefore abandon and cede it.

COURT: Yes, I’m the sort of person, I don’t know whether rightly or wrongly, who wants to stay back, to stand back, look at things from a distance because, usually, that will help you to see the forest, you know, if you see what I mean.

MR HO: Yes, yes, my Lord.

COURT: So standing back a little bit, looking at the whole thing, thinking in layman’s terms, I mean, forget about all this legal compartmentalisation, trying to fit this into this pigeonhole and so on, let’s look at it from a commonsense point of view.  Right, so someone came up to you, told you that this would be what’s been promised for plan A, right, when in fact they never intended to give you the plan A, they intended to have the plan B, what do you call that?

MR HO: That is misrepresentation, my Lord, yes.  Fraudulent misrepresentation. ”

80. As discussed above, as a matter of law, such representations could constitute actionable representations. 

81. The case of misrepresentation was pleaded at paragraph 83(A) of the Amended Statement of Claim.  That paragraph referred to earlier paragraphs in the pleadings (which pleaded the representations regarding the buy-back) and went on to plead:

“ such misrepresentations were false, in light of the fact that the 2^nd and 3^rd Defendants never intended to honour the buy back promise as relied on by the Plaintiff, and the same were merely a trap in order to induce the Plaintiff to enter into the PS&P and FS&P in light of the matters and circumstances pleaded hereinabove and the fact that the 2^nd and 3^rd Defendants subsequently reneged on such buy back promise.”

82. As I said, in this appeal counsel focused too narrowly on the first limb of that plea, viz the intention to honour the buy back promise.  The emphasis of the judge was on the other aspect, that it was a trap as the Defendants represented to the Plaintiff that this was not an outright sale (by intimating to the Plaintiff that there would be a satisfactory arrangement for the Plaintiff or his siblings to get back the the title of the 1/3 interest) whilst all along they intended to enforce these agreements as an outright sale.

83. The pleadings can certainly be improved.  However, given the genesis of paragraph 83(A), I hold that the reference to a trap could embrace a case of misrepresentation as to the true intention of the Defendants in terms of use of the agreements as instruments for the secured bridging loan when in truth their intention was to enforce the agreements as an outright sale.  The buy-back (whether as an inchoate option or otherwise), like the agreements, was simply part of the mechanism for the implementation of such loan.  As explained above, the issue as to the real nature of the transaction had been adequately pleaded and all the relevant evidence in respect of that issue, including how the transaction came into existence, was before the court.  There is no unfairness for the judge to analyse the case in the way he did in his judgment. 

84. Hence, the certainty as to the price for the buy-back is not essential under the judge’s analysis on misrepresentation.  As for the timing, I repeat what has been said earlier with regard to the one-year time span. 

85. Mr Wong further submitted that in any event there is no cogent evidence to show that the Defendants had no intention of honouring the buy-back promise.  Subsequent reneging on the promise cannot be sufficient evidence to prove that they had no such intention at the earlier time when the representations were made.  On the evidence, counsel submitted, the transaction was aborted because the sister discovered the same and the Plaintiff wanted to back down.  Inherently, it was improbable that the 1^st Defendant would refuse to sell the 1/3 interest back to the Plaintiff or his siblings as it would be difficult to sell that interest to an outsider. 

86. The Defendants deliberately stalled the preparation of the buy-back document.  They then sought to enforce the agreements as outright sale and demanded compensation on that basis after the Plaintiff indicated he want to cancel the transaction.  The compensation was set at $3 million (though the Defendants said they were later prepared to reduce it to $1.5 million).  This was so notwithstanding by that stage, the 1^st Defendant had only paid deposit to the Plaintiff in the total sum of $220,000.  In this action, the 1^st Defendant counterclaimed for specific performance of the agreements as an outright sale.  In light of these matters, and the whatsapp message of 23 April 2012 (in which the Defendants said they would proceed with the sale unless the Plaintiff paid the compensation[21]), I have no difficulty with the judge’s conclusion that the Defendants had all along intended to take advantage of the Plaintiff by having the agreements enforced as an outright sale.  This is sufficient to support a case of misrepresentation given the correct analysis of the representation by reference to the nature of the transaction and the purposes of the agreements as stated above.

87. The inherent unlikelihood of the 1^st Defendant refusing to sell to the Plaintiff or his siblings is after all a red-herring. As demonstrated by the events in April 2012 after the Plaintiff asked to cancel the transaction, the Defendants had all along intended to demand a price based on the true market value on the premise that the sale to the 1^st Defendant at $5 million was an outright sale.  Thus, the fact that there was no good reason for the 1^st Defendant rejecting any buy-back from the Plaintiff is neither here nor there.  The real evil in the trap lies in the Defendants taking advantage of the Plaintiff in terms of the under-valued “price” set in these agreements (and the judge found that they had knowledge of the under-valuation[22]) which they procured by misrepresenting to the Plaintiff their intention on how these agreements would be relied upon.

88. Mr Wong also submitted that the Defendants did not intend the Plaintiff to act on the representation as the Plaintiff was legally represented and had the benefit of independent legal advice.  He contended that the Plaintiff did not rely on that representation since the formal sale and purchase agreement was executed despite he was told by the 3^rd Defendant that the buy-back agreement would only be signed after completion. 

89. But the 3^rd Defendant did not tell the Plaintiff that there would not be any buy-back agreement or that the sale was actually an outright sale.  It was open to the judge to find that the Plaintiff was therefore still subject to the effect of the misrepresentation when he signed the formal sale and purchase agreement.    

90. Thus, notwithstanding the valiant efforts of Mr Wong, I would affirm the judge’s decision on misrepresentation.

The valuation of the property

91. Mr Wong developed this ground (Ground 7 in the Re-amended Notice of Appeal) in the context of his submissions on unconscionable dealings. The judge held that the Defendants were aware that the valuation provided by Standard Chartered Bank and ASA were too low. Based on his assessment of the valuation evidence adduced at the trial, the judge found that the market value of the interest of the Plaintiff in the Shop at the time of the agreements was between $9.75 million and $10.5 million.

92. Mr Wong submitted that the interest of the Plaintiff should be assessed on the basis of a distressed sale as the Plaintiff was in urgent financial need. He said the Defendants reasonably relied on the ASA valuation.

93. I agree with Mr Leung that the matter should not be assessed on the basis of a distressed sale. Though the Plaintiff was in urgent financial need, the evidence accepted by the judge clearly indicates that he did not conduct this transaction with the Defendants by way of a distressed sale. For the purpose of assessing whether the Defendants took advantage of the Plaintiff by misrepresenting that this was not an outright sale, the judge correctly examined the normal market value of the property. Apparently, this was the basis of valuation adopted by both experts and there was no suggestion at the trial that the experts were wrong to do so. I do not see any reason for this Court to hold that his assessment of the valuation evidence before him was erroneous.

94. Based on his finding on the proper valuation of the property, the judge was also entitled to come to a view that the valuation of ASA was suspiciously low in view of its discrepancy with the proper valuation. Further, in view of the demand of $3 million for compensation (which the Defendants could not justify if they believed the valuation of ASA was the correct one), the judge was entitled to conclude that they were actually aware that the ASA valuation was an undervalue.

95. I see no basis for this Court to interfere with the judge’s findings in these regards.     

The appeal on costs

96. Mr Wong also appealed against the costs order made by the judge. He submitted that the judge failed to take account that the Plaintiff only succeeded on one of the five causes of action and the case of fraudulent misrepresentation was only introduced on the first day of trial.  He also submitted that those other causes could not possibly succeeded in light of the Plaintiff disowning the agreements in the evidence.  He further submitted that the raising of the other causes of action had significantly increase the length and costs of the proceedings.

97. Counsel acknowledged the high threshold he faced in an appeal against the exercise of discretion on costs by the judge as held in Ho Shu Kwong v Chiang Chun Yan [2002] 3 HKLRD 419.  He submitted that in this instance this Court should intervene because the judge had overlooked the above matters.

98. With the greatest respect, Mr Wong’s submissions completely failed to have regard to the position adopted by the parties before the judge: costs should follow the event (see [99] of the judgment).  I agree with Mr Leung that in such circumstances, there is simply no basis for taking these points when trial counsel decided not to raise such arguments below. 

99. There is therefore no valid reason why this Court should intervene on the judge’s decision on costs.

Disposition

100. For the above reasons, I shall dismiss the appeal.  I shall also order the Defendants to pay the Plaintiff the costs of the appeal except the costs in respect of the Respondent’s Notice.

Hon Cheung JA:

101. I agree with the judgment of Lam VP.

Hon G Lam J:

102. The background has been set out in Lam VP’s judgment which I have read in draft and gratefully adopt.

103. There is no dispute that the Plaintiff executed the two agreements in question (the preliminary agreement and later the formal agreement for the sale and purchase of his one-third interest in the Shop).  At trial the Plaintiff pleaded and raised, inter alia, 4 recognized legal bases for relieving him from their consequences, namely, as summarised by the judge[23], that the agreements (1)  were procured by misrepresentation; (2)  were procured by undue influence; (3)  were unconscionable dealings; and (4)  resulted from the Defendants’ breach of fiduciary duties.  There was an additional ground alleging a composite agreement or collateral agreement which included a promise to permit the Plaintiff to buy back his interest.  It was said that the Defendants repudiated this agreement or were estopped from denying the promise to permit the Plaintiff to re-purchase his interest.[24] There was a further argument that the Defendants should be refused specific performance because of unclean hands.[25]

104. At the end the judge found in favour of the Plaintiff on misrepresentation, and did not consider or determine the other grounds or causes of action.[26]  He granted a declaration that the Plaintiff was entitled to and did rescind the agreements for misrepresentation and also made an order setting aside the agreements.

105. The misrepresentation plea[27] in the statement of claim (as amended on the first day of trial) was that there were misrepresentations by the 2^nd and 3^rd Defendants as pleaded in a number of specified paragraphs of the statement of claim.[28] In the main the gist of those paragraphs was that the 2^nd Defendant or 3^rd Defendant told the Plaintiff the arrangement was that the Plaintiff (together with his siblings) would be given about a year’s time to buy back his interest in the Shop.  I would immediately accept the misrepresentations could have been better pleaded and particularised, but this is not as such the Defendants’ complaint.

106. On this appeal the principal contention of the Defendants is that the judge misunderstood the case of the Plaintiff and gave judgment for him on a false premise unsupported by evidence.  To assess this submission it is necessary to go into greater detail of what the Plaintiff’s case was and what the judge understood it to be.

107. The Plaintiff’s case was that the Defendants represented to him that they would give the Plaintiff about a year’s time to buy back his interest in the Shop at a price that was reasonable, in the sense that it would do no more than cover the Defendants’ cost.  While it may be said to be in form a representation as to the shape of the intended overall transaction, it is clear that this included at least an alleged representation of fact that the Defendants did at the time have the intention to honour the promise.  This was clear from the plea that the representation was false “in light of the fact that the 2^nd and 3^rd Defendants never intended to honour the buy back promise as relied on by the Plaintiff, and the same were merely a trap …”[29] and the parties’ closing submissions.[30] This is also the position taken by the Plaintiff’s counsel on this appeal.

108. In support of their contention that the judge misunderstood the Plaintiff’s case, the Defendants point to [15] of the judgment where the judge said:

“ As stated above, there are several major factual disputes in this action. A proper resolution of these disputes will require an assessment of the witnesses’ credibility (and reliability). The ultimate factual issue being: whether the said agreements truly reflect the nature of the transaction between the contracting parties:

(a) the plaintiff’s case is that they do not; the said agreements were entered into as a result of the misrepresentations of Ng and Hui (and Leung) to the effect they were merely in the nature of a secured “bridging” loan (pending the agreement of the other co-owners (that is, the plaintiff’s siblings) to obtain a proper bank mortgage) to enable the plaintiff to clear his personal (gambling) loans;

(b) the defence case is that they do, and the alleged misrepresentation is denied.”

109. The Defendants also point the following passages in the judgment:

“ 71.  … (1)  on the facts stated in the plaintiff’s witness statement, in essence he “disowns” the said agreements because the defendants misled him into believing the said agreements were intended for purpose A, when in fact they were intended for purpose B (a typical complaint premised on para 1(1) above)

…

74. [the plaintiff’s] case is only that the defendants have misrepresented the true nature of the said agreements”

110. The point made by the Defendants is that the Plaintiff’s case of misrepresentation was not that he was misled as to the nature of the agreements, and the judge was mistaken to think that it was.  Despite the able submissions of Mr Horace Wong SC, who appeared for the Defendants in this appeal but not below, the contention is in my view specious.

111. There is superficial attraction in the criticism of certain passages in the judgment such as [74] because it was never part of the Plaintiff’s case that he had been misled as to the nature of the agreements in themselves.[31]  But the judgment must be read as a whole against its proper background and in its context.  Infelicitous expressions alone do not vitiate a conclusion where it is otherwise plain that the tribunal has properly directed itself.

112. The crucial factual dispute between the parties at trial was whether they had come to a consensus, a common understanding that there would simply be an outright sale of the Plaintiff’s interest to the 1^st Defendant, or there would be a sale with a right to buy back.  If the latter, then the judge considered that the nature of the transaction, viewed as a whole, would be a secured bridging loan: “bridging” because it was to cover the period pending the agreement of the Plaintiff’s siblings to obtain a bank mortgage loan with which to pay off the Defendants and repurchase the Plaintiff’s interest.  Consistently with this approach, the judge said (in [15] of the judgment) that the ultimate question was whether the agreements (in and of themselves) truly reflected the nature of the (entire intended) transaction between the parties.

113. The judge put the same question in a slightly different way in [71(1)]: whether the Plaintiff was misled to think that the agreements were intended for purpose A, when in fact they were intended for purpose B.  On the facts of this case, this question is in substance no different from the question whether the Defendants had told the Plaintiff he would have a right to buy back, when in fact they had no intention of proceeding in that way.  On the basis of the representation, the agreements were part of and for the purpose of an overall transaction including the right of repurchase (which would be in a subsequent separate agreement[32]).  If in fact the Defendants had no intention of giving the Plaintiff a right of repurchase, the agreements would be, from their point of view, for the purpose of an outright sale simpliciter.

114. Even though the written document is in terms absolute, it is well established that extrinsic evidence is admissible to show the real intention of the parties is otherwise and to show the true nature of the transaction: see Barton v Bank of New South Wales (1890) 15 App Cas 379, 380-381.  In the case of a composite transaction, it is open to the court to assess the true substance and character of the overall transaction having regard to all the circumstances, even accepting that part of it consists of a genuine sale and purchase effected by a written document: Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 at [73], [79]. 

115. In the present case although the two agreements are on their face agreements for a simple sale and purchase of the Plaintiff’s interest in the Shop, there is evidence that the parties’ intention, as reasonably and objectively understood, went beyond that.  In essence the judge found that the mutual understanding was there would be a sale to the 1^st Defendant, an arrangement for the Plaintiff to remain “in possession” in the sense that he would continue to collect the rent, and an option for the Plaintiff to repurchase.

116. Whether such a transaction should be characterised in law as a sale coupled with an option to repurchase, or a loan secured by a mortgage or charge, is in my view not an essential question for the purposes of this appeal, and I would prefer to leave it open.  Their legal incidents are very different, as regards risks of the Shop being destroyed, risks of a major collapse in the property market, stamp duty on the documents and so on.  If the transaction had in fact proceeded to a repurchase then the result would be similar to a mortgage loan that has been repaid and discharged, at any rate where the repurchase price was calculated by reference to the original sale price together with interest.  But it does not follow that a transaction that produces or is anticipated to produce the same economic consequences as a secured loan is necessarily to be characterised as a mortgage.  It is the legal substance of the matter, not the economic effects, that is determinative: Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270, 300H, 303F. 

117. Whatever may be the correct legal classification of such a composite transaction, however, it is plainly very different from a sale and purchase simpliciter.  As the Vice-President said in [50], [53] and [55] above, the Plaintiff’s right of repurchase was an integral part of the parties’ discussions, and hence their intention as regards the overall arrangement.

118. It should be noted that in [15(a)] of the judgment the judge was not setting out verbatim the pleaded misrepresentations but summarising at a highly general level their effect and stating what he viewed as the “ultimate” issue.  The rubric of “nature of a secured bridging loan” seems to have been employed by the judge as a shorthand to refer to the overall transaction comprising both the sale and the right of repurchase.  The nature of the agreements referred to in [15(a)] and [74] of the judgment seems to me to be a reference to the nature or purpose of the agreements in the context of the overall transaction as mutually understood. 

119. There are other paragraphs in the judgment which set out concretely what the Defendants said to the Plaintiff.  Thus in [22], the judge noted:

“ Hui said his bosses in Keystone could form a company to hold the suit property for about a year during which time the plaintiff could persuade his family members to “buy it back”. The “buy-back” could be effected by all the co-owners obtaining a bank mortgage of the Shop.”

In [33], the judge said the Plaintiff’s case was that:

“ [the 2nd defendant] and Leung said in effect that a company would be set up to “purchase” the suit property, which could later be “bought back” by the plaintiff and his siblings within a one-year period (in other words, an arrangement in the nature of a one-year “bridging” loan, with the appearance of a “sale”).”

In [47], the judge referred to the Plaintiff’s case that because his existing loan had to be repaid soon and because of his trust of the 2^nd and 3^rd Defendants and Leung, he agreed to enter into “the ‘buy back’ arrangement” they had proposed earlier. 

120. The judge evidently correctly understood the factual case of the Plaintiff.  In [37], the judge found the Plaintiff’s case credible and rejected the defence case, which denied any mention of such buy back arrangement, as incredible.  In contrast, despite broad references to misrepresentation as to the “nature of the agreements”, nowhere did the judge refer to any assertion by the Plaintiff that the Defendants actually made representations to him about what the agreements were, because the Plaintiff in fact made no such assertion. 

121. Rather than misunderstanding the Plaintiff’s case, it seems to me that the judge considered that the plea of misrepresentation depended essentially on the principal factual question, i.e. whether or not the Defendants did tell or promise the Plaintiff that the intended transaction or arrangement included a right for him to buy back his interest in the Shop and the Plaintiff entered into the agreements on that basis.  This is evident from [97(2)] of the judgment where the judge, recording his reasons for giving leave to amend the statement of claim to add the plea of misrepresentation, stated that the Plaintiff’s factual case remained the same.

122. It can also be seen that at the end, the judge ordered a declaration in terms of paragraph (2) of the Plaintiff’s prayer for relief[33], which stated the Plaintiff was entitled to rescind the agreements on the ground not of some unpleaded misrepresentation, but of the misrepresentation made by the Defendants by virtue of the matters pleaded in paragraph 83 of the statement of claim.

123. The judge clearly still had in mind the amended misrepresentation plea of the Plaintiff when he issued the judgment: see [97(2)].  I am not persuaded that the judge had misunderstood the Plaintiff’s case and, as it were, invented by himself a different case not run by the Plaintiff, as alleged by the Defendants on his appeal.  The judge found that the Defendants did promise the Plaintiff would have a right of repurchase, even though the Defendants steadfastly insisted there was no such promise or understanding.  It seems to me the judge must implicitly have found a representation by the Defendants as to their intention which was false because they did not have such intention at the time.

124. Indeed it is difficult to see, on the factual findings made by the judge, what other conclusions there could be about the misrepresentation case.  Mr Wong SC argued that there was nothing to suggest the representation as to intention was false, because there was nothing to show Defendants would not be willing to sell the interest back to the Plaintiff at a modest sum.  He referred to certain evidence from the Defendants that in April 2012 they asked for $1.5 million to cancel the sale and purchase (see [85]-[87] of the judgment).  But that, in my view, is not to the point.  Subsequent willingness (assuming it existed) to reach a compromise for the payment of a reasonable sum does not mean there was an intention to honour the overall arrangement including the right of repurchase which the Defendants denied throughout the litigation.  That the Defendants had in fact no such intention was squarely put in cross-examination.[34]  The Plaintiff’s evidence, which the judge appears to have accepted, was that the Defendants already stated on 11 April 2012 that they had never mentioned entering into a buy back agreement and demanded compensation in the sum of $3 million.[35]  To suppose that the Defendants did have an intention to honour the buy back arrangement when they promised the Plaintiff, but for some reason they shortly changed their mind and decided to take the stance thereafter throughout that there was never any buy back arrangement, would seem to me to be unreal.

125. As a matter of principle there is no conceptual difficulty in finding in a promise an implied representation of fact by the promisor that he had an intention to honour it: British Airways Board v Taylor [1976] 1 WLR 13, 17C-E.  It is not fatal to the misrepresentation case that neither the price nor the period for the repurchase had been precisely agreed (though the fact that the debts repayment note and rent collection note contemplated the Plaintiff would still be collecting rent for 14 months gave support for the Plaintiff’s evidence that the common understanding was that the period would be one year).  To give rise to an actionable misrepresentation of existing intention, a promise does not have to amount to an enforceable term of contract.  Indeed it seems to me it is precisely where a promise may not be legally enforceable that a case on misrepresentation of intention based on the promise becomes significant.  Especially as between friends and within relationships of trust, reliance may more frequently be placed on the assumed existence of good faith than on formal legal actionability.  And in this case the judge did find that the Plaintiff and the 3^rd Defendant were close friends and that the Plaintiff trusted the 2^nd and 3^rd Defendants and Leung: see [5], [26], [47] of the judgment.

126. Mr Wong SC argued that the representations did not evince any settled or committed intention on the part of the Defendants to enter into a buy-back arrangement.  In my view while the degree of definiteness and precision of an intention may be relevant to determining whether a Plaintiff was in fact induced by it to act, there is no doubt in this case the judge did accept the Plaintiff’s case that in entering into the agreements he had relied on what the Defendants had told him about the overall arrangement.

127. Accordingly, I would reject the main ground advanced for the appeal.  Alternatively, and insofar as necessary, I take the view that this court can make express the findings on the Plaintiff’s misrepresentation case (which I consider implicit in the judge’s judgment) as proposed in paragraph 2 of the Respondent’s Notice, and affirm the judge’s conclusion on this basis.

128. Mr Wong SC also complained that the judge misinterpreted the nature of the sum of $411,000 referred to in the so-called “debts repayment note”.  It seems to me the document evidenced an arrangement for the Plaintiff ostensibly to remain “in possession” in that he would continue to collect the rent for another 14 months.  I agree with what the Vice-President said at [43] and [45] above and that this ground is insufficient to impugn and overturn the judge’s findings of fact.

129. I also agree with the Vice-President for the reasons he gives in [96] – [99] that the challenge against the judge’s costs order should be rejected.

130. For these reasons, I, too, would dismiss the Defendants’ appeal.

Hon Lam VP:

131. We therefore dismiss the appeal and order the Defendants to pay the Plaintiff the costs of the appeal except the costs in respect of the Respondent’s Notice.