GOODWILL CAPITAL LTD. v. BUSINESS SECURITIES LTD.

HCA9964/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9964 OF 1998

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J U D G M E N T

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1. This is a claim for loss and damage arising from a suggested breach of an agreement to sub-sub-underwrite an issue of rights shares.

Background

2. The plaintiff is a merchant bank and securities dealer; and the defendant is a broker and securities dealer; having set up business as such in March 1998. An announcement appeared in the press on 17th April 1998 by the Oriental Press Group ("OPG") that it proposed to raise $501 million by issuing new shares through a rights issue, allotting one rights share to every four ordinary shares held by the shareholders whose names appeared on the register of members at close of business on 11th May 1998. The rights issue was announced to be subject to a number of conditions, to be fulfilled by 30th April 1998, in particular the approval of the shareholders. The last day of dealing on a cum rights basis was to be 4th May 1998. The underwriters named in the announcement were BNP Prime Peregrine, and Asia Financial Capital Limited ("AFC"). The subscription price was HK$1.38 per share, a discount of about 24% to the closing price quoted on the Stock Exchange on 16th April. The latest time for the acceptance of the provisional allotment by the holders of the rights shares was originally to be 26th May 1998, but that was extended to 27th May.

3. The principal shareholders held about 67% of the then existing issued share capital and undertook to subscribe for their entitlement to the rights shares. Such underwriting agreements as were undertaken related to the balance, or to part of the balance.

4. 16th April was a Thursday, and 17th April a Friday. That week, AFC agreed orally with the plaintiff that the plaintiff would sub-underwrite two million rights issue shares at the subscription price, for a commission of 1% of the aggregate value of the plaintiff's participation, subject to the acceptance of detailed terms and conditions under a written agreement.

The plaintiff's case

5. The plaintiff's case is that there then followed an oral agreement between the plaintiff and the defendant, whereby the defendant agreed to sub-sub-underwrite the issue to the same extent, namely, two million shares at the same subscription price, but for a commission of 0.5% of the aggregate value of the defendant's participation, subject again to the acceptance of detailed terms and conditions under a written agreement.

6. It is the plaintiff's contention that on 20th April, the plaintiff accepted the terms and conditions proposed by AFC by signing and returning a form which in turn referred to a letter containing detailed terms and conditions, and that on the same date the plaintiff sent essentially the same terms to the defendant, with the difference only as to the commission payable; and that the terms were accepted by the defendant by signing and returning a form of acknowledgment on 20th or 21st April 1998.

7. The terms of the agreement run to several pages. The offer referred to in the letter, which it is said was sent to the defendant for acceptance, was expressed to be conditional upon the rights issue proceeding on terms referred to in the press announcement of the issue. There is reference to the date by which the shares are to be taken up or not, as the case may be, by the shareholders, and the circumstances in which the defendant would be obliged to take up its proportion of the rights shares. I shall return later to the material terms.

8. In the event, says the plaintiff, the shares were under-subscribed and the plaintiff was required by AFC to take up 1,983,400 shares in the sum of $2,737,092, less commission due from AFC to the plaintiff. Accordingly, the plaintiff turned to the defendant under the suggested agreement and required the defendant to take up the same quantity of shares, which, less commission, required a payment of $2,723,292. The defendant company, however refused to pay that sum, so the plaintiff was compelled itself to take up the shares. In order to mitigate its loss, it sold the shares on 2nd June 1998 for $1,546,951.06; and the amount claimed as against the defendant in these proceedings is the difference, taking into account also interest due under the agreement.

The defendant's case

9. The beginning of this hearing was met with some discussion about the exact nature of the defendant's case : whether it was conceded that there was an enforceable agreement for the sub-sub-underwriting of this shares issue (subject to the contention that there was a later representation that it was not to be enforced); or whether it was said that there was never a concluded agreement. This exchange resulted in an application to amend the Defence and Counterclaim, for which I gave leave. By those amendments, the matter is put on the footing that the plaintiff invited the defendant to participate in "sub-sub-underwriting arrangements of the rights issue" and that "the defendant would be entitled to a commission of 0.5% of the value of the defendant's proposed participation in return for its offer to sub-sub-subscribe"; that later the same day the defendant "offered to participate in the sub-sub-underwriting arrangements", and that on 16th April Mr Lau requested the defendant to sign and return a Form of Acknowledgment and that is what the defendant did, and the form was returned the same day. Then it is pleaded that the next day, that is 17th April, a Mr Samuel Lau on behalf of the plaintiff company, telephoned the defendant company and told them that "the sub-sub-underwriting arrangements had been oversubscribed and that the defendant would not be required to take up the two million shares which it, the defendant, had offered to take up, but that the commission would be calculated and paid to the defendant in early June". In short, the contention is that there was no concluded agreement between the plaintiff and the defendant but only an invitation from the plaintiff and an offer from the defendant which, in the event, was not accepted.

10. There was, near the end of the evidence of the main defence witness, an application to re-amend the Defence. The essence of the proposed re-amendment was, it appeared, to be a suggestion that there was, in the alternative, some agreement to sub-sub-underwrite which was conditional upon notification of acceptance by the plaintiff of the defendant as sub-sub-underwriter. The proposed re-amendment was far from clear in its impact, and I took the view that it made it difficult as framed for the plaintiff to know what allegation it was supposed to meet, so I refused to allow the amendment in the terms presented, although I did suggest that the defence might wish to consider recasting the pleading with greater particularity, a suggestion which was not activated. Still, the proposed change to the pleading was, I think, not a great deal different from the case as now pleaded. I also note that in the original Defence, there was a suggestion of estoppel; to the effect that if there was a concluded agreement, the defendant company was persuaded that it would not be held to that agreement, and that in pursuance of that representation, it acted to its detriment. That plea of estoppel was removed by the amendment to the Defence.

11. The defendant counterclaims saying that it is still owed the commission of $13,800.

12. This is a case which turns on factual conflict and on the inherent probabilities, and a fairly close analysis of the contending facts is, I fear, necessary.

Mr Graham Lam

13. Mr Graham Lam is an associate director of the plaintiff company, and he explained in his testimony how the plaintiff first became involved with this rights issue. Mr Lam was a most impressive witness, a man of intelligence, who took great care to be accurate and fair. I found his evidence to be thoroughly reliable, and I accept it as being factually accurate in every material aspect.

14. I did not permit the statement filed by him, or indeed by other prospective witnesses, to stand as evidence-in-chief, because this case is so centred on disputed facts and upon credibility that I preferred to hear the witnesses in-chief as well as in answer to such cross-examination as might take place.

15. The plaintiff's introduction to this rights issue and the proposed underwriting of it appears to have come through Mr Samuel Lau who at the time was (although he no longer is) employed by another subsidiary of the plaintiff's shareholding company. Mr Lam first heard about the rights issue or its suggested underwriting on 16th April when he was told by Mr Lau of AFC's inquiry, whether the plaintiff was interested in taking up a sub-sub-underwriting commitment. Samuel Lau asked whether the plaintiff would be interested if he, Lau, could find clients to sub-underwrite the shares. Mr Lam was certainly not interested on any other basis. Then, on 17th April, Mr Lau told Mr Lam that he had a sub-sub-underwriter (although this evidence was not admitted to prove the truth of that assertion but merely to explain Mr Lam's subsequent conduct).

16. That evening, according to Mr Lam, he, Mr Lam, went to see the Group's Chief Executive Officer, who agreed to the proposal. So Mr Lam spoke to Mr Lau and said that the documents would be prepared on Monday 20th April, since 17th April was a Friday and it was late. Lau said that he would inform AFC and the defendant, telling them that all was in order.

The letter from AFC

17. On the same day, that is 17th April, Mr Lam saw a letter from AFC setting out the terms and conditions of the sub-underwriting proposal. That letter is dated 16th April, but the document was received by the plaintiff company at about 6:44 p.m. on 17th April; and that is evident from the fax details shown on the letter, and that timing also accords with Mr Lam's testimony. He also says that Mr Samuel Lau gave it to him only 10 minutes after it was faxed. The letter says that the terms are to be accepted by 5 p.m., but nonetheless, says Mr Lam, it was not in fact faxed to the plaintiff until more than an hour later than that, a fact which he discussed with AFC because he had to speak to them to tell them that it was now too late to deal with the matter until Monday morning; and AFC explained why they were late in transmitting it, saying that there were many letters that they had to send out that day. Mr Lam is sure that his company's fax machine was not out of order, and he is also sure about the time of receipt of AFC's letter.

18. The effect of the letter is to offer to the plaintiff a sub-underwriting participation of two million shares for a commission of 1% of the aggregate value of the plaintiff's participation only if the conditions referred to in the press announcement have been fulfilled. The document states that if all underwritten shares have by 4 p.m. on 26th May been accepted or applied for, then the plaintiff's obligation under the agreement would cease and the plaintiff would be entitled to the commission; whereas if all of the shares have not been accepted, then AFC may, at their discretion, call upon the plaintiff to subscribe for such number of shares, being the proportion of the shortfall attributable to their participation, and then the plaintiff would have to register and pay the subscription price for the shares taken up. In the event of default by the plaintiff, AFC would then be entitled to take up the rights shares on behalf of the plaintiff and pay for them, and "this authority shall be conferred on us upon your acceptance of this sub-underwriting participation", and then the plaintiff would be liable to reimburse AFC for the cost of taking up the shares. There is also provision for the payment of interest on late payment. There then follows this paragraph :

"If you wish to accept this offer of a sub-underwriting participation on and subject to the terms and conditions set out above, please reply to this offer by telephone ... as soon as possible and in any event by no later than 5 p.m. on 17th April 1998 and return to [AFC] by no later than 12 noon on 18th April 1998 the enclosed copy of this letter duly signed to signify your acceptance of the above-mentioned terms and conditions."

The Form of Acknowledgment

19. No copy letter was sent for endorsement, but rather a document entitled "Form of Acknowledgment". Its provisions are important, and it runs as follows :

"Re:	Oriental Press Group Limited Rights Issue of not less than 363,302,017 shares of HK$0.25 each at HK$1.38 per share

I/We confirm my/our acceptance of the abovementioned sub-underwriting Participation of 2,000,000 Rights Shares on and subject to the terms and conditions set out in your letter dated 16th April, 1998, of which the foregoing is a copy, and I/we undertake to pay on demand the Subscription Price due in respect of any Rights Shares which I/we may be called upon to take up as a result of this participation."

The mirror exercise

20. On 20th April Mr Lam set about organising the implementation of the proposals, and he requested the Board to approve the documents and asked AFC to supply the computer disk of the letter and Form they had sent. He did this so that he could the more readily adapt the letter and form for use with the defendant. He then signed the Acknowledgment sent by AFC and faxed it to AFC.

21. Using the computer disk, he caused his secretary to produce a letter and Form of Acknowledgment for use with the defendant company; in other words, to mirror the letter and form that had been sent to the plaintiff by AFC. I have the letter and the form and they are in exactly the same terms as those sent by AFC save that the addressee is Business Securities in the case of the letter, and Goodwill Capital Limited (the plaintiff's case) in the case of the Form; the date of the letter is 20th April; the percentage commission of 0.5%; and the dates for acceptance of the offer are 20th April (oral acceptance) and 21st April (written acceptance) respectively.

22. There are two points of particular interest :

(1) The Form of Acknowledgment refers to the "terms and conditions set out in your letter dated 16th April". Whereas there was in fact never a letter dated 16th April from the plaintiff to the defendant, and whereas the letter to the defendant containing the terms and conditions was dated 20th April, Mr Lam explains this by saying that when he went through the process of making amendments to the AFC letter and Form, he overlooked this particular amendment; and

(2) The foot of the letter and the Form still bear file reference numbers which do not belong to the plaintiff but which Mr Lam believes to belong to AFC.

23. Once the amendments were made, Mr Lam gave the documents to Mr Lau with a view to Mr Lau delivering them to the defendant company. Mr Lam's evidence was that it had been his intention to fax these documents to the defendant company, but Mr Lau told him that he, Mr Lau, would that evening or the following morning meet somebody from the defendant company, and that is why the documents were given to Mr Lau. Mr Lam's evidence is that Mr Lau could not possibly have had access to AFC's disk; he was but an accounts executive, a salesman, and the disk was sent to the corporate finance department of the plaintiff company and, because of security arrangements, the disk from AFC would not have been given to Mr Lau.

24. Mr Lau has not given evidence. The plaintiff company does not know where he is. So, if there are any conclusions to be drawn as to what he did with the documents, it could only be a matter of inference, assuming the inference can properly be drawn.

25. The next time Mr Lam saw the document was the following day, namely, on 21st April. Mr Lau gave it to Mr Lam and it then bore two signatures, though no date. The two signatures, it is established by the evidence, are those of Mr Cheng and Mr Choi of the defendant company and they are the two signatories which the defendant company had provided as its authorised signatories for the purpose of the account which it had opened with the plaintiff company.

26. On 13th May, the Form of Acknowledgement was sent again by the plaintiff to the defendant, asking them to put their chop on it. This was done at Mr Lam's insistence because Mr Lau had by then left the plaintiff company and Mr Lam wanted the added assurance of an official chop. There was no written response to this request, but there was a conversation between staff of the defendant company and Mr Lau to which I shall later refer.

The crunch

27. On or about 27th May the plaintiff received a letter from AFC calling in the plaintiff's obligation under the sub-underwriting commitment, and on the following day, 28th May, the plaintiff wrote to the defendant company in precisely the same terms, save for the amount of the indebtedness and the time of requested payment. To this letter, there was no response from the defendant in writing but Mr Lam did speak to Mr Choi of the defendant company over the telephone on 28th May. Mr Choi said that Mr Lau had told him that it would not be necessary for the defendant to take up the shares. In the event, the plaintiff took up the shares and paid for them.

The conversation of 28th May

28. As for that conversation on 28th May, there has emerged a transcript of the telephone conversation which has been agreed and translated. It is a three way conversation between Mr Choi for the defendant company, and Mr Lam and Mr Patrick Ho of the plaintiff company. Mr Ho is the plaintiff's Chief Executive Officer. The call was made by Mr Lam. In the course of the conversation Mr Choi explains why it is that the defendant company refused to pay the amount allegedly due under the agreement. The allegation he makes is that Mr Lau had said that it was not necessary to pay for the rights issue; and that there was "no need to subscribe to the rights issue" since it was already oversubscribed. There is a suggestion that Mr Cheng, of the defendant company, and Mr Lau had come to some sort of "mutual understanding" ... "on the second or third day afterwards chasing for the result of the matter [Lau] told [Mr Cheng] that no responsibility needed to be taken for the matter ... there is no need for underwriting ... someone has taken them up". Then there follows from Mr Ho the following words : "But he said those words after your signing of the underwriting agreement. This is because we had already handed the document to you for signing on that day when we contacted you." And Mr Choi answers : "That's right; that's right." Mr Ho : "I want to ask if Samuel [Lau] had reassured you that the matter would definitely have no problem before you signed the underwriting commitment", and Mr Choi responds : "Not as far as I recall."

Mr Cheng

29. It was Mr Cheng, the defendant's dealing director, who appears to have had all material contact with Mr Samuel Lau. He had known Mr Lau for some time. He testified that he came to know about the rights issue on 16th April and in the afternoon that day, Lau spoke to him asking whether his company was interested in participating in a underwriting of a rights issue. Lau would let them know before 10 a.m. the following morning whether the defendant had a chance (of participating), and in turn the defendant was to let him know as soon as possible what their position was because there were a lot of participants as regards "Code 18". Code 18 was the dealers' number for OPG. The subscription price was then much lower than the market price, and Mr Cheng thought that this was an attractive proposition. He urged Lau to let him have an answer by 10 a.m. the following morning - "an answer" meaning whether they, the defendant company, could participate. His evidence is that failing such an answer they, the defendant company, would not agree to partake. In the meantime, Mr Cheng and some of his salespeople set about finding clients for two million shares, and they found them. Mr Cheng said that the defendant was going to secure a commission of 0.05%. It was, I have to say, very difficult to follow his evidence as to the circumstances in which that commission was to be paid, and in respect of what the 0.05% was to be paid. As best I could follow it, Mr Cheng was saying that, in the trade, commission would often be paid merely because an order was placed even if the transaction was not successful.

30. In any event, after clients were secured by Mr Cheng and by his colleagues, two telephone calls were made to Mr Lau to tell him just that, and then Mr Cheng emphasised to Mr Lau that he, Mr Cheng, had to have an answer by the following morning.

31. Then, according to Mr Cheng, all of a sudden after 4 p.m. on 16th April there came a call from Mr Lau who said that the defendant company should immediately sign a sub-sub-underwriting agreement and that the document was to be faxed immediately; the plaintiff wanted to "put together" all sub-underwriters to see how much there would be; by which I understood him to mean how much in the way of sub-sub-underwriting would be forthcoming to back up the plaintiff's participation. He, Lau, had to account to his company for that. The chances, however, of acquiring participation to the extent of two million was said by Lau to Cheng to be remote. What is more, according to this account, Lau said that if the next day, he, Lau, gave the green light, the defendant would then have to sign an underwriting agreement with the plaintiff.

32. So, then, the Form of Acknowledgment came into the defendant's hands. In examination-in-chief Mr Cheng said that he thought that it had been faxed. He first saw it some time after 4 p.m. on 16th when Mr Choi presented him with this one sheet, and he and Mr Choi signed it. As far as he recalls, it was then faxed back to the plaintiff company sometime after 4 p.m. In cross-examination, however, it became perfectly clear that what was signed by Mr Cheng and Mr Choi had not been faxed to the defendant company and that the original document itself was signed by them. Mr Cheng then stated that it may well be that the original was delivered by Mr Lau on 16th; it may even be that he, Mr Lau, was there when it was signed. The contents were explained to Mr Choi. He, Mr Cheng, asserts that there was no accompanying letter and he, Mr Cheng, took the reference to the letter of 16th April as being a reference to the very document itself - the Form of Acknowledgment itself. The first time he saw any accompanying letter, the other four pages that is, was either on or about 20th April or 20th May; Mr Choi showed it to him.

33. On 17th April in the morning, according to this evidence, Mr Lau telephoned Mr Cheng and said that the matter had been cancelled explaining that there "were too many people putting in the bid" - too many sub-underwriters. And that was the end of the conversation, subject to the pleasantry of an expression of regret. As a result, the clients of the defendant company were informed accordingly.

34. That was the end of the affair as far as the defendant was concerned until mid-May when they received a fax from the defendant company and as a result Mr Cheng telephoned Mr Lau. There has been produced a tape recording of the telephone conversation and the voice at the other end is said to be that of Mr Lau. There is reference in it to 'OPG' and then the following :

"Mr Cheng : I was told last time we were not required to subscribe at all.

The other voice : Right.

Mr Cheng : Is that right?

The other voice : Yes."

Then there is discussion about interest due which Mr Cheng explains as reference to the commission due.

Other defence evidence

35. There has also been produced, and I have seen, documents which purport to be acknowledgments by those clients of the defendant company who promised or undertook to take up shares : each is dated 16th April 1998, and each is in terms which mirror those of the acknowledgment letter signed by the defendant company in favour of the plaintiff company. None of the clients has been called as a witness, though I note that there were statements filed by them.

36. The defence have also called Mr Choi as a witness. He was the Marketing Manager of the defendant company. I do not propose to rehearse his evidence, for it largely follows that of Mr Cheng. He says that as far as the Form of Acknowledgment is concerned, he signed it, even though he saw reference in it to a letter of 16th April. He says that he did not pursue what that was all about, because Mr Lau was insisting on having the document back by the evening of 16th April and he, Mr Choi, presumed that it was impossible for Lau to have all the documents ready. He only saw the letter of 16th April in early May or thereabouts when the plaintiff company sent it with the new Acknowledgment Form to sign.

37. There was a thread of his evidence which may be of some significance, namely, his suggestion that the defendant company not only thought that they might become sub-sub-underwriters, but also that they might in the immediate aftermath of 16th April, acquire some rights shares. Indeed, there was in the defence evidence a notable lack of clarity as to the precise deal which they were being offered by Samuel Lau. Mr Choi referred on several occasions to the fact that the defendant company was anxious to know by the morning of 17th April "whether we were successful in our bid for the rights issue", and from this refrain, it appeared that not only may discussions have centred not upon an underwriting agreement but that, in addition, or indeed instead, the defendant thought that it might be in a position to obtain subscription rights. I therefore asked Mr Choi whether he thought that Samuel Lau was in a position to obtain subscription rights for him and his clients, and the answer was an unequivocal 'Yes'. Despite the difficulty in following quite what it was the defendant company's witnesses were saying as to the deal which they thought Samuel Lau was offering, one thing is quite clear and that is that they signed an agreement which on its face was a binding underwriting agreement.

The absence of Mr Lau

38. There is in this case a significant lacuna in the evidence, in that the court has not had the advantage of testimony from Mr Samuel Lau. He is a key personality, and the whole story for the defence case rests very much on what it is alleged he told Mr Cheng in April 1998, although in saying that I bear in mind the fact that the burden of proving an enforceable agreement lies upon the plaintiff. Mr Pang, in his able closing submission for the defendant, emphasised the importance of the absence of Mr Lau and of his testimony. He points to the evidence of the plaintiff company that Mr Lau was under-performing; to the fact that Mr Lau left the plaintiff company shortly after the events in question; that Mr Lau, rather than have the Form of Acknowledgment and the terms faxed to the defendant company, offered to take them around himself and then, rather than have the Form sent to the defendant company to be dated, he dated them himself. All this suggests, it is said, that Mr Lau may well have been up to no good. Mr Pang also rightly stressed the content of the telephone conversation with Mr Lau on 14th May and drew to my attention the forms signed by the defendant's clients, each dated 16th April 1998, which forms are in the same terms as the form signed by the defendant company upon which the plaintiff so heavily relies in this case.

Indicia

39. Despite the absence of Mr Lau's evidence, however, there is before me evidence which I believe enables me to draw proper conclusions. It is not possible to be certain about what happened between Mr Lau and the defendant witnesses after the sub-sub-underwriting agreement was concluded, but I am satisfied, and I find, that there was an enforceable agreement made in the terms of the letter dated 20th April 1998, and that the signatories to it intruded it to be a binding agreement. The account of events given by the defence witnesses does not sit comfortably with a number of salient factors against which it is possible to test the reliability of contradictory evidence which has been proffered in this case :

1. It may well be that Mr Lau approached the defendant company on 16th April and invited from them an expression of interest which he could then relay to Mr Lam; and it may well be also that in those circumstances the defendant company asked some of its clients whether they were interested in OPG shares and in further sub-underwriting the issue. Exactly what they put to their clients as the gravamen of the deal in the offing is a matter about which the evidence gives some cause for speculation. Be all that as it may, one thing is in my judgment quite clear and that is that the document, which is the Form of Acknowledgment for the underwriting commitment which Mr Cheng and Mr Choi signed, was signed by them on or after 20th April. It could not have been given to them, as they suggest, on 16th April. The Form of Acknowledgment is clearly an amended version of the Form sent by AFC to the plaintiff, and the Form sent by AFC was, I am sure, both from the document itself and from the evidence of Mr Lam, not sent to the plaintiff company until the late afternoon of 17th April. Furthermore, I find that the Form was not amended to bear any reference to the defendant company until 20th April. I accept Mr Lam's evidence that it was impossible for the amendments to have been made by Mr Lau, for Mr Lau did not have, nor could he have had, the disk sent by AFC. The offer letter to the defendant was clearly dated 20th April and there is no reason to suppose that the letter and the Form were delivered separately from each other to the defendant. Indeed, they are consecutively paginated and the document signed by the defendant, through Mr Choi and Mr Cheng, was signed on a page bearing the number '5'. The Form bears the date 21st April but Mr Lam was open enough to say that that date had not been put there by the defendant but rather by Mr Lau in his presence when he, Mr Lam, queried the absence of a date. I accept Mr Lam's evidence that he gave this Form and letter to Mr Lau, unsigned, only on 20th and that Mr Lau returned with it signed on 21st. I find that it was signed by Mr Cheng and Mr Lam on 20th or 21st.

2. The account given by Mr Cheng and Mr Choi of the circumstances in which they came to sign this document, the Form of Acknowledgment, is, in any event, highly improbable. It is a document which is clear in its terms and the signatories are men of experience, whose working lives are conducted in a realm in which precision and binding commitment are the hallmarks of their daily business. One of them, Mr Choi, is well versed in English. The Form which they signed was not a Letter of Intent, nor was it a mere expression of interest. It was clearly a commitment to participate in an underwriting exercise; and not just that, but on terms and conditions specifically referred to; and beyond that, on the face of the document itself, an undertaking to pay the subscription price if called upon to do so and to the extent called upon. I do not believe that the defendant directors would have committed themselves to this document in the circumstances they suggest, at least not without having sight of the accompanying letter.

3. I am entirely persuaded by Mr Lam's explanation as to how the date of 16th April came to be in that letter and I rather think that it is the appearance of that date on that Form of Acknowledgment - erroneous as it happens - that has encouraged the defendant to persuade itself that it must therefore have been a document signed on the 16th.

4. The account given by Mr Cheng as to the circumstances in which he came to sign the Form of Acknowledgment is, for other reasons, not compelling. He suggested in the course of examination-in-chief that when he saw it, for signing, it was on fax or photocopy paper. That would tally with a story that events unfolded as swiftly as the defendant contends. But it soon became clear beyond any doubt, and it was ultimately conceded, that the document signed was an original, which rather suggests that it was in fact, as Mr Lam says, hand delivered. Mr Cheng then asserted that the Form of Acknowledgment came without the letter. That is most unlikely. As I have commented, the page which he signed and the defendant's own copy of that page bears the page number '5'. In other words, when it was delivered, it was almost certain that the other four pages had already been prepared. Given that the document was hand delivered, as I find, there is no good reason to suppose that only the fifth page was delivered, especially when one recalls that the Form of Acknowledgment refers in terms to an attached letter. The contention by Mr Cheng that he thought the reference to a letter dated 16th April was a reference to the Form of Acknowledgment itself sits ill with the words in the Form "set out in your letter dated 16th April 1998 of which the foregoing is a copy" and the reference to terms and conditions, for the Form contains no terms and conditions. It is also evident that someone has gone through the terms and conditions to underline the salient points. Mr Choi concedes that he did but says that this was only in mid-May.

5. The suggestion that Mr Lau was saying that there were many other interested parties whose expressions of interests had to be placed before the plaintiff company and that that is why the document had to be signed, and the suggestion that there were other players in the field for this sub-sub-underwriting participation, whose participation might squeeze the defendant company out altogether, does not sit well with what was happening at Mr Lam's offices. As far as Mr Lam was concerned, there was only one player put to him as a serious contender; the only other was an individual who was promptly rejected as a possibility. By the time the Form of Acknowledgment came to the attention of the defendant company, the defendant company was in fact the only contender for the sub-sub-underwriting deal, failing which there would be no participation by the plaintiff, let alone any sub-sub-underwriting by the defendant or anyone else. So either Mr Cheng and Mr Choi are not accurate in their account or Mr Lau was playing them along for some reason which it is difficult to fathom. It is not as if, in fact, he found some other underwriter more acceptable to the officers of the plaintiff company.

6. My mind has, of course, been much exercised by the recording of the telephone conversation, apparently with Mr Lau, on 14th May. It is not accepted by the plaintiff that the other speaker is necessarily Mr Lau, but even assuming it is, it is odd that there was no question put by Mr Cheng asking Mr Lau how it was that the plaintiff company was chasing for payment under the sub-sub-underwriting agreement, which agreement allegedly did not exist; there was no request for Mr Lau to go at once and have a word with his bosses about it; there was no remonstrance with Mr Lau about what has happened; there was no mention of the fact that the company had sent to the defendant a (further) Form of Acknowledgment in relation to a sub-underwriting agreement and was insisting upon fulfillment of that agreement; and there was no follow-up letter to the plaintiff company from the defendant telling them what has just transpired. In so far as one notes reference in the conversation to the commission due, I have some difficulty in understanding how commission could be due if the whole matter had (as is alleged by Mr Cheng) been described by Mr Lau as one that had been "completely cancelled".

7. The telephone conversation of 28th May, on its face, tends to suggest that it was recognised by Mr Choi that there had been a concluded agreement but that it was only after that that Mr Lau said something to absolve the defendant of its liability. The evidence given by Mr Cheng and Mr Choi in these proceedings was crystal clear, namely, that the matter was first broached on 16th April and that by 10 a.m. on 17th April the proposed deal was a "dead duck". Yet in the conversation on 28th May - only five or six weeks after the events in question - Mr Choi was telling Mr Lam more than once, that two days or two or three days after the confirmation, Mr Lau had said "it was not necessary". And it is noteworthy that Mr Choi was there speaking of a suggested promise by Mr Lau that "there is no need to pay for the rights issue". How one asks, two days after 16th April or thereabout, could there arise a question of "payment for a rights issue", unless there was some talk, quite apart from an underwriting commitment, of acquiring subscription rights. Again : "It was not necessary to subscribe for the rights issue ... It was already oversubscribed." This is terminology, even though it is an oral communication not reduced to writing, which does not sit comfortably with a sub-sub-underwriting arrangement and is an echo of the refrain, to which I have earlier referred, suggesting some expectation by the defendant of subscription rights. I note, too, that in this conversation Mr Lam referred to the signing by the defendant of the "underwriting commitment", and the suggestion that it was a commitment was not then the subject by Mr Choi of any qualification or challenge.

8. There are other noteworthy oddities in the defence case. One is a comment by Mr Cheng in his witness statement made for the purpose of these proceedings :

"I must stress that at that time [16th April], I did not know the details of the rights issue. Although the confirmation letter mentioned terms and conditions set out in their (the Plaintiff's) letter of 16th April 1998, such letter had not been sent to the Defendant company then. Lau did not tell me that the rights issue was conditional or that there were any terms out of the ordinary for a rights issue. Had I known that the rights issue was conditional, I would not have been interested considering the very long delay of nearly one and a half months between the date of the announcement of the rights issue and the final date for fulfillment of the conditions. I would not even have bothered to call up my clients, since in my experience so much can happen in the stock market within a period of one and a half months that I would not recommend my clients to take such a risk by locking themselves into a position with no way of cutting their losses should the market move against them."

Mr Cheng was quite unable to explain this in the course of cross-examination. The delay of about six weeks between the announcement and the closing date for subscriptions by shareholders was not, he conceded, dramatically long, although he seemed to suggest that normally it was shorter, perhaps two to three weeks. Here again, one cannot help but wonder whether there is something in this paragraph which hints at a misunderstanding, perhaps, by the defendant or a failure by its officers to appreciate, or a failure to communicate to their clients, the true nature of the deal, or some concurrent discussion apart from an underwriting commitment about acquiring subscription rights. Indeed, there was a stage in his evidence when it seemed that Mr Cheng was saying that the shares themselves would be available the next day. Conversely, it is difficult to understand how Mr Cheng could not have appreciated that the rights issue was conditional and how he could have expressed any interest in it, going so far as to obtain commitments from his clients, without knowing what the lead-in period was.

Conclusions

40. In the circumstances which I have described, I cannot accept the evidence of the defence witnesses about the circumstances in which the Form of Acknowledgment was signed, nor that there was an agreement to absolve them from liability under the sub-underwriting agreement. It is not just that the defence case as presented by the witnesses was wholly imprecise and confusing, but that it did not sit with those facts of which I could be and was satisfied.

41. The rejection of an account given by a party does not of itself prove the converse. In other words, I have still to ascertain whether it is proved on the plaintiff's case that there was this agreement, the terms of which are set out in the letter of 20th April. I find that the letter was first drawn by Mr Lam that day, as was the Form of Acknowledgment. I find that Mr Lam gave both to Mr Lau. I find that Mr Lau returned the following day to the offices of the plaintiff with the Form, and that the Form was signed by the defendant through its authorised signatories, Mr Cheng and Mr Choi. I am entitled to infer from those facts, and from the contents of the Form, that the letter of 20th April addressed to the defendant company was delivered to that company at the same time as the Form and that the defendant had notice of the letter when it signed the Form. I draw that inference. I am entitled, in the absence of any contrary reliable evidence, to infer, and I do infer that when the defendant company signed that Form, it intended to enter upon a binding agreement. The allegation in the original pleading that there was some form of representation creating an estoppel is no longer part of the pleaded case. But I should say that in any event, the burden being on the party which sets up the estoppel as a defence to prove it, a case of estoppel by representation has not been shown.

42. It is common ground that the defendant has not paid any sum pursuant to the agreement of 20th April, and there is no issue as to the amount of the plaintiff's consequential loss, or as to the interest due.

43. Accordingly, there will be judgment for the plaintiff on its claim in the sum of $1,182,640 plus interest at the rate of prime plus 2% from 4th June 1998 to the date of judgment, and interest thereafter at the judgment rate.

44. As for the counterclaim, the sum due as commission is accounted for in the amount claimed for the plaintiff and the counterclaim is, accordingly, dismissed.

45. I should add that the suggestion by the defendant company that there was an agreement that 0.5% commission was payable (indeed Mr Cheng suggested that the agreement was for commission of 0.05%) merely for offering to enter upon a sub-sub-underwriting agreement was a suggestion that did not ring true, and the evidence of Mr Cheng that this was a matter which arises from some understanding in the trade was, in any event, a contention which was not pleaded.

46. There will be an order nisi that the defendant will pay the costs of the claim and counterclaim, to be taxed if not agreed.