HO SHU KWONG WILSON v. CHIANG CHUN YUAN alias PAUL CHIANG

HCA 3759/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3759 OF 2000

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J U D G M E N T

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Introduction

1. In December 1996, the plaintiff subscribed for shares in a BVI incorporated company called China Health Enterprises Limited (China Health) paying $3m for 1% of the shareholding. This was at the behest of the defendant who was looking for investment capital on behalf of China Health and its subsidiaries with the prospect of procuring a listing on the NASDAQ exchange. It is the plaintiff's case that a condition of his investment or, alternatively, in a collateral contract with the defendant it was agreed between himself and the defendant that the defendant would guarantee to the plaintiff a refund of the subscribed price together with interest if the NASDAQ listing was not realized by the end of the February 1997. When the listing failed to materialize the plaintiff made demand of the defendant to recover his investment without success, apart from the defendant paying to him what he, the plaintiff, claims is a deposit of $58,000.00 on account of the $3m plus interest due.

2. By this action the plaintiff sues to recover the balance of $2,942,000 together with interest at a rate to be fixed by the Court.

3. The defendant denies there was any such condition attached to the plaintiff's subscription or that there was a collateral contract as alleged, and denies an obligation to make good the amount the plaintiff had subscribed being $3m plus interest. The $58,000.00 he paid to the plaintiff was what he describes as 'earnest money', a sum paid in good faith during negotiations the parties entered into for a subsequent sale and purchase of the shares on terms to be agreed, independent of any obligation that was part of the plaintiff's subscription.

4. When the proposed transaction did not materialize he called for a refund of the earnest money but the plaintiff has refused to comply. He counterclaims to recover the sum of $58,000.00

History

5. The defendant is by qualification a medical practitioner. Since about 1989 he has branched out from the traditional role of a doctor and been engaged in setting up various enterprises in the medical field. The first of these, called for short Health First, was not a success. In 1993 it collapsed owing more than it could afford or raise. In 1994 he and fellow investors started again. There came to be incorporated various companies or other entities whose principal activity has been to make available medical services to sectors of the community in Hong Kong and, more recently, Mainland China, either by establishing medical centres manned by doctors and back up staff, or by contracting with large corporations to provide medical services for their staff. One such enterprise was a partnership called Harrison Medical Centre, subsequently to become Asia Medinet. Asia Medinet's primary business was to contract with major corporations such as China Light and Power and, for a fixed fee based on the size of the workforce, provide medical services to its staff through a panel of doctors whose fees were met by Asia Medinet.

6. By all accounts business was successful. There was rapid growth. New companies came to be formed. Asia Medinet entered into a management contract with one of these, called Galaxy Technology Limited (Galaxy). In China new businesses were established through joint venture companies involving Mainland institutions. In 1994 these came to be grouped as subsidiaries of two BVI companies incorporated that year. One was China Health, whose subsidiaries were those companies doing business in Hong Kong. The other was called New Pioneer Beijing Shanghai Medical Centres Limited, which in 1996 changed its name to New Pioneer International Medical Centres Limited (New Pioneer). Its subsidiaries were those engaged in joint ventures on the Mainland.

7. As business developed, new markets tapped and aspirations were pursued, a certain amount of restructuring of the two groups of companies was engaged in, details of which I shall come to. It is a point of conjecture as to the extent to which the defendant was in control of existing business and the part that he played in developing new business, and the extent to which the corporate goals of the enterprise as a whole were his goals. Suffice to say I am satisfied he was the driving force and instigator.

8. In August 1996 when New Pioneer changed its name a decision was made to expand its business and as part of that process seek a listing on the NASDAQ Stock Exchange. As a necessary first step more venture capital was needed. A local company called American Appraisal Hong Kong Limited (American Appraisal) was engaged to report on the group's business activity and come up with an overall net worth. The report was based on material provided by the management including management accounts and a commentary of aspirations and projections, so it was not, because it could not be, based on historical audited data. In fact at this stage there were no audited accounts. The net worth was estimated by American Appraisal to be $762m.

9. It is appropriate to note that the report whilst purportedly prepared to establish the net worth of New Pioneer incorporated a chart described as a 'Proposed Corporate Structure' in which China Health was shown to be the parent company of New Pioneer and all the other various subsidiaries, either directly or through New Pioneer. That restructuring had at that stage yet to be carried out. Furthermore Galaxy, shown in the chart to be a subsidiary of China Health, was then independently owned. It is to be noted that according to an auditor's report carried out some years later but back dated to 1994, in December 1994 Galaxy purchased for consideration the business run by Asia Medinet. The restructuring exercise anticipated by the chart did eventuate in two stages, one in December 1996 and the other in December 1997 as I shall come to. Suffice to say that as at the date of the report which was September 1996 it was anticipated that all the various entities would be grouped under the one umbrella, were valued as such and for the purpose of raising investment capital the group was promoted on that basis.

10. Meanwhile Asia Medinet, originally through its predecessor Harrison Medical Centre, had as one of its corporate customers Hotel Nikko Hong Kong (Hotel Nikko) and was thus providing medical services in the manner described to Hotel Nikko's staff. This all began in the early 1990's. The plaintiff was then and remains the financial controller of Hotel Nikko. He and the defendant became acquainted in 1990, because at that stage in addition to being engaged in the business ventures already referred to the defendant was the resident doctor for Hotel Nikko. He also came to know the defendant as a partner of Asia Medinet because in his capacity as financial controller it was his duty to oversee the contract between his employer and Asia Medinet.

11. When the time came for New Pioneer to raise capital in mid 1996, the plaintiff came into the picture as a prospective investor. Whether he approached the defendant or it was the defendant who sought him out is contested; in the event that is not material.

12. The parties negotiated in August 1996. The proposal was that the plaintiff invest $3m by subscribing for new shares in New Pioneer which would give him a 1% interest in the recaptialized company. He was told of the pending application to list on the NASDAQ. The plaintiff agreed to invest but upon the basis that his money would be refunded in full if a listing was not achieved by November 1996. There was agreement in principal. A short document headed 'Shares Subscription Agreement' for signing by New Pioneer and the plaintiff or his nominee was prepared. The plaintiff, mindful of the connection with Asia Medinet, declared his interest to the management of Hotel Nikko and was cleared to invest. But the transaction did not then proceed, at least not on those terms.

13. In December 1996 the first stage of the corporate restructure already referred to was carried out. By way of a share swap between China Health and New Pioneer China Health became the holding company of New Pioneer.

14. Then at this time the plaintiff came back into the picture as a prospective investor, now in the parent company China Health. And this time the investment proceeded. The terms however are disputed as set out at the beginning of this judgment. The plaintiff formally applied for and was allocated 20,618 shares of US$1 representing 1% of the fully paid up capital of China Health. But this proved incorrect. As part of the restructuring the authorized share capital of China Health had been changed from 50,000 ordinary shares of US$1 to 5,000,000 of US$0.01. This warranted correction. But by the time all this came to light there was a further adjustment necessary, because the second stage of the corporate restructure, undertaken in December 1997, being the absorption of Galaxy into the group by another share swap, was that the fully paid up capital of China Health was by then $2,090,000. The plaintiff's 1% was thus 20,900 shares. This adjustment was recognized in a shareholders' resolution passed in March 1998. The plaintiff was a signatory to this document. The plaintiff's share certificate back dated to 15 December 1996 then issued.

15. Meanwhile there was no listing achieved, by China Health or any subsidiary, by February 1997. The plaintiff's claim for reimbursement as a consequence not being recognized by the defendant, he filed his writ in April 2000.

The Issue

16. There is in these proceedings only one issue; there being nothing in writing to establish the terms upon which the plaintiff subscribed in China Health, is he able to prove on a balance of probabilities that his account of a verbal agreement is the truth?

17. For the purpose of resolving this, I now come to review the evidence.

The Evidence

18. The Plaintiff was called first.

19. He said it was the defendant who approached him, inviting an investment in the group. His initial concern came from the knowledge that the defendant had played a prominent part in Health First, the company which collapsed in 1993 owing many millions; and there was a CCB investigation, though no wrong-doing emerged. So, whilst encouraged by the accounts he was shown and future prospects he was told about he was wary to commit. Then the defendant proposed to him that he reserve to himself the right to a refund in the event that there was no NASDAQ listing by three months. Only then and with that condition enshrined did he agree to invest. A form of agreement was drafted. But in the event the transaction did not proceed because, as he was told by the defendant, legal advice indicated the deal could not stand up because the proposed listed subsidiary had not yet come into existence. He disagreed with the defendant's account which was that the board of New Pioneer had turned down the proposal.

20. The invitation was renewed late in the same year. By then he had read and absorbed the American Appraisal report which on paper indicated a 1% share in the restructured group for $3m was a good deal. But he said his feet were on the ground; he was aware that the bottom line depended on aspirations and assumptions, rather than audited historical fact. He still regarded as an essential ingredient a NASDAQ listing, and he insisted on the same let out provision. The defendant said this was not possible because it would interfere with the 'due diligence' exercise that was being undertaken in the lead up to a stock exchange listing application. Then the defendant proposed that if the listing did not go ahead as stipulated within three months of the investment he, the defendant, would guarantee to repay the subscribed price plus interest. Implicit in that proposal was that the defendant would buy the plaintiff's shares at the agreed price. It was on that basis that he made his investment. He denied the defendant's account, namely, that there was no condition, no collateral agreement and no other tag to what was a straightforward subscription for shares in China Health undertaken with the normal commercial risks. He denied that before committing himself he had discussed the pros and cons with another shareholder called Mr Bill Lam, a chartered accountant, and that following that he had decided to go ahead, satisfied that the investment was sound and likely to be profitable. He said that Bill Lam was, as company secretary, in charge of the register of documents and formal activity such as that. The advice he was able to give was limited to how the group was structured. Although he is a qualified accountant by profession he was not appointed as the group's accountant, and was not in a position to give advice on its finances. As such he did not seek him out and did not get advice from him, much less act on it.

21. When by April 1997 the deadline for a NASDAQ listing had passed, he repeatedly called upon the defendant to make good his commitment. From this time the defendant variously responded that he owed him an obligation and would do so and then that he did not owe him anything and would not. In the event nothing tangible was done; in particular he was not refunded his investment.

22. In January 1998, requested by the plaintiff and acting in his capacity as financial controller of Hotel Nikko, he wrote a letter of commendation for Asia Medinet, knowing that it would be used by Asia Medinet to foster new customers.

23. Audited accounts for the group for the years 1994 to 1996 emerged in 1998. The plaintiff was sent a copy as shareholder. It was then that the shareholding discrepancy was noticed about which he complained. The matter was rectified by shareholders' resolution already referred to. He was a party to that resolution.

24. At this time the defendant arranged to meet him and told him that he was due to meet members of the Overseas Union Bank Limited of Singapore, a bank engaged to promote the group's application for a listing on the Singapore Stock Exchange. The defendant invited him to attend and he did so, whilst not taking an active role.

25. Moving forward to December 1999, it was by then apparent that China Health had suffered severe financial losses as a result of reversals in one of the joint venture undertakings in which one of the subsidiaries was engaged in Mainland China. It was to announce that and discuss the raising of funds to rescue the group that the defendant called a meeting of shareholders held on 7 December 1999. He, the plaintiff, attended. Present apart from the defendant were Messrs John Yao and Alex Chow and Dr W L Cheung, all of whom were shareholders or representing corporate shareholders of China Health. The plaintiff attended purely for the purpose of confronting the defendant and getting him to admit, before witnesses, that he was, by the agreement made in December 1996, committed to refund to him the subscription price and interest. When so confronted the defendant did not deny liability but said that that was not the purpose of the meeting and that as a personal matter between them they should deal with it later. Having received that admission and assurance the plaintiff was content to leave it at that.

26. A few days later the parties met. He said the defendant agreed to buy his shares at the invested price plus interest and told him to prepare an agreement. He instructed his solicitors to do so and they sent the proposed draft to the defendant. The price was calculated to be the sum total of $3m and accrued interest at 12% from the date the investment was made in December 1996. By now it was January 2000. The defendant did not sign, and only responded in March. Then it was he sent a fax to the plaintiff in note form setting out the terms he required. One of the proposals was a cryptic one, that the parties: 'sign a letter of mutual understanding'. The price was to be $3m but paid by 50 instalments. There was no provision for interest save 4% per annum on the reducing balance, calculated from November 1999. He responded with comments and amendments; a question mark against the proposal concerning the so-called letter of mutual understanding, and a mathematical adjustment to recognize the accrued interest.

27. Still the parties could not agree. They met for tea on 13 March 2000. The defendant presented another proposal. The plaintiff turned it down. But as a means of laying to rest any doubts about his sincerity the defendant on or by 14 March paid him $58,000 as a deposit towards the price he was to pay and told him to instruct his solicitors to prepare another agreement. He did so. This was sent to the defendant on 20 March. But there was no response. Treating that as the defendant's repudiation he accepted that and issued his writ on 11 April 2000.

28. He was taken to the defendant's account of what transpired at the meeting of 7 December 1999 and its aftermath; namely, that the defendant had told him that he would consider buying his shares in China Health if they could agree the terms. The defendant's main concern was to protect Asia Medinet's contract with Hotel Nikko. It was his fear that once the plaintiff was out of China Health he would no longer be committed to retaining Asia Medinet. It is his account that an essential term of the shares' sale and purchase was that the plaintiff guarantee the continuation of that contract at the current level of profitability. That was what he meant by requiring 'a letter of mutual understanding'. He repeatedly sought the assurance from the plaintiff but he never committed himself. The plaintiff said there was no such proposal. But had there been he could not have given the guarantee. As financial controller it was not within his power to continue or terminate Hotel Nikko's contact with Asia Medinet; that was a decision for senior management.

29. On the topic of Asia Medinet he went on to say that in the fullness of time Hotel Nikko did decide not to renew after the contract's due date. But this had nothing to do with him. He produced correspondence which revealed complaints because panel doctors were refusing to treat staff members, saying they had not been paid for past services by Asia Medinet. Against that background, instead of renewing, Hotel Nikko called for quotes from other organisations offering the same services, and in due course contracted with one called UCMG.

30. He reiterated that throughout the negotiations and at the time he committed to invest in China Health the NASDAQ listing within three months was a crucial ingredient. He pointed to a sentence in American Appraisal's report of September 1996 which stated: 'It is our understanding that this appraisal is for the purpose of corporate restructuring and subsequent listing on one of the United States Stock Exchanges'. He relied on the defendant's confirmation that that was to proceed or he would be entitled to his money back.

31. I come now to his cross-examination.

32. It was put to him that whilst he claimed the buy back was an essential condition he had not bothered to reduce that to writing. He agreed that was so. It was put to him that it was an important part of his function as financial controller at Hotel Nikko to ensure all contractual obligations were properly documented, and that all terms and conditions were reduced to writing. He agreed. It was put to him that the condition giving him the right to recover his investment was an important one. He agreed. It was pointed out to him that when he first negotiated to take shares in New Pioneer this important provision was reduced to writing, whilst there was no such written provision when he subscribed in China Health. It was put to him that was because there was no such condition second time around. He disagreed. He said the defendant was pressing him for his money and he was hustled into paying out and having to rely on the spoken word. He also said that in fact he had tried to get the defendant to put pen to paper but he declined to do so. It was put to him that there was urgency but it was coming from him; that he was eager to invest in the group before the listing which was likely to inflate the value and the price. He disagreed.

33. Taken to his account that after February 1997 when the listing had not been achieved he made frequent demands of the defendant for the refund of his investment he was asked if any of these were in writing. He said none of them were. It was put to him that in fact he made no such demands because there was no agreement that the defendant had to pay him. He denied that. It was put to him that there was no need for the indemnity; that he was satisfied with the investment on his own research and knowledge of the facts and belief in the group's potential. He denied that. It was put to him that to have to pay only $3 for a 1% interest in a group whose worth was valued at $762m represented excellent value for money, and that was why he bought unconditionally. He denied that.

34. Taken to the meeting of December 1999 it was put to him that this was the first time he complained to the defendant about his investment, engendered by the huge losses the group had suffered, and that was why he demanded the refund. He denied that.

35. Taken to events of early 1998 he agreed that the focus of the group's intentions to list had changed from the NASDAQ to Singapore. He agreed, whilst saying that expectations for a listing on the NASDAQ had not dropped away.

36. Taken to the draft agreements he instructed his solicitors to prepare following the December 1999 meeting he was asked to point out where it was recorded, in the preamble or elsewhere, that they were in exercise of a condition of the original subscription. He conceded that there was no such record. It was put to him that that was because the negotiations he had with the defendant in late 1999 and early 2000 for the sale and purchase of his China Health shares were independent of the original subscription; that the defendant was under no obligation to buy the shares on terms or at all. He denied that.

37. Next, in turn, I heard from the three shareholders in China Health already referred to by the plaintiff, Messrs Alex Chow and John Yao and Dr W L Cheung.

38. None were able to throw light on the terms of the plaintiff's original investment. None was present when this was concluded. None acquired their shares on condition of a listing or any other condition.

39. John Yao said he was on the board of New Pioneer at the time the plaintiff's first proposal was the subject of a draft agreement which was not, in the event, signed. He took issue with the defendant's case that the board had considered but had turned down the proposition. He did not recall that the matter was dealt with at board level and has not seen a minute or resolution to that effect.

40. All three said they were present at the meeting of 7 December 1999. All three confirmed their witness statements in which it was recorded that they heard the plaintiff call for a refund of his investment because of the failure by the company to get a listing within three months, to which the defendant responded that this was a private arrangement which the parties would deal with later.

41. Much of the remainder of the evidence of these three witnesses was peripheral to the issue in this case. What did emerge is that John Yao and W L Cheung have been and perhaps still are at loggerheads with the defendant. Both are or at least have been personally engaged in litigation with him. John Yao's was occasioned by steps taken by him to block a sale by the defendant of Asia Medinet, which according to the audited accounts was and had been since 1994 an asset of Galaxy. W L Cheung's was a defamation suit. Alex Chow has been a friend and confidant of John Yao for some 25 years. It was at Alex Chow's invitation that John Yao invested in the group. Regardless of the structure of the group and those companies comprising it all regarded the defendant to be in control and the instigator of all policy decisions, including the pursuit of a listing. All three blamed the defendant for the heavy losses around which the meeting of 7 December 1999 was centred. John Yao said his investment of $6m in the group was now worthless.

42. That was the evidence for the plaintiff.

43. Then I heard from the defendant, sole witness for the defence.

44. He adopted the witness statement he had filed as his evidence in chief which he supplemented from the witness box. He said that it was the plaintiff who approached him about investment opportunities, coincidentally when he and his fellow shareholders were looking to raise venture capital for New Pioneer. The draft agreement was prepared to reflect the plaintiff's wish to pull out if the US exchange listing did not go ahead. He discussed the proposal with his fellow shareholders and in particular Bill Lam, whose professional opinion was highly respected by the board on such matters. Bill Lam said the subscription should not be qualified in this way. He and the others accepted that recommendation and the plaintiff was told. There was not a formal minuted discussion nor was a resolution passed to that effect.

45. He was not engaged in the subsequent discussions with the plaintiff which had led to his joining China Health in December. By then the majority of his time was spent in China. He produced his China Re-entry Permit which corroborated this. To his knowledge the plaintiff spoke to Bill Lam who, he understood, explained the proposed restructuring and provided such information as was necessary to assist the plaintiff in making up his mind. He was not asked by the plaintiff and he did not agree to indemnify him if the NASDAQ listing did not proceed by committing to buy his shares or in any other way. As far as he was aware there was no tag to the plaintiff's subscription. In fact he did not even know that he had made the investment until after the event.

46. Moving forward to late 1999, he said in his witness statement that the purpose of the meeting of members held on 7 December was to try to raise funds from the shareholders to make good the financial reversal in China. He said at the meeting the plaintiff and the others present blamed him for the losses suffered. He regarded this as most unfair, because although he was responsible for new business development in China, nevertheless he was only one of several directors in China Health and thus not any more liable than any other director for the business reversals. But to avoid argument he told he plaintiff that if he wanted to sell his shares because of these losses he would consider buying from him upon terms which they would subsequently discuss.

47. From the witness box he said that in fact the meeting was not called by him but by W L Cheung for the purpose of dealing with losses in Hong Kong; in particular the doctors on Asia Medinet's panel had not been paid. Curiously, there was no reference to this in his witness statement. He seemed unable to say why.

48. In the subsequent discussions he had with the plaintiff he said it was important to him and in the interests of China Health that Hotel Nikko would continue to contract with Asia Medinet. This was because W L Cheung, a former partner in Asia Medinet, had resigned and he was concerned that once the plaintiff had severed his ties with China Health and thus Asia Medinet, he might encourage Hotel Nikko to do likewise.

49. Although there had been reversals and the shares might not have been worth $3m, nevertheless he was willing to pay $3m, the plaintiff's asking price, because retention of the Hotel Nikko contract was an all important ingredient and worth that to him.

50. There was no sale and purchase of the shares, because the parties did not reach agreement. The $58,000 he paid was not a down payment on a transaction already confirmed, but a token gesture made in good faith that he was willing to purchase the plaintiff's shares if they could agree terms.

51. Then he was taken to the litigation occasioned by an attempted sale by the existing partners of Asia Medinet, which John Yao had tried to block because Galaxy owned Asia Medinet. He said that was misconceived. Asia Medinet continued to run as a partnership, managed by Galaxy, under the management contract even after the sale and purchase referred to in the audited accounts, whereby Galaxy had purportedly purchased the business of Asia Medinet. He said this was because what was purchased were the contracts then in existence. Asia Medinet entered into new contracts after that and it was these that it continued to operate, managed by Galaxy as before.

52. Returning to this action, he reiterated he had never made any commitment to the plaintiff, as alleged by the plaintiff, that he buy the plaintiff's shares if the NASDAQ listing was not achieved.

53. Then came his cross-examination.

54. Taken to the relationship between Asia Medinet and Galaxy he confirmed that Galaxy acquired only the existing contracts of Asia Medinet, allowing the partnership to find new customers whose contracts were managed by Galaxy as before. He was then asked why he had signed a document prepared by the auditors, called a management representation letter, as managing director of China Health and two subsidiaries in January 1998, which made no reference to Asia Medinet continuing to operate in its own capacity independent of Galaxy. He said that he did so because he was asked to; that this being Hong Kong activity rather than of the Mainland, where most of his efforts were concentrated, it was not within his management or knowledge, at least as to detail.

55. It was put to him that in fact following Galaxy's purchase in November 1994, he had no right with any partner of Asia Medinet or otherwise to sell or deal in the business of Asia Medinet independently from the China Health group. He disagreed.

56. Taken to the plaintiff's proposal made mid 1996 which in the end did not proceed, he confirmed that the rejection stemmed from Bill Lam and it was then adopted by the other directors including him. That was what he meant by recording in his witness statement that it was the board which declined the offer.

57. He confirmed his evidence in chief that subsequent discussions and negotiations which ultimately led to the plaintiff investing in China Health were conducted between the plaintiff and Bill Lam. He conceded he was not present and relied on Bill Lam's account. When asked why Bill Lam had not been called to give a first hand account he said he believed it was not necessary.

58. Asked if the NASDAQ listing was his brainchild he said no; it arose generally from discussions the directors had amongst themselves. Asked if it is was his idea, he said he could not remember.

59. Then he was taken to the meeting of 7 December 1999. It was put to him that he called the meeting to discuss the cash flow problems and, in particular, that it was because of the withdrawal by the Canadian Consulate General from a contract in which New Pioneer had been appointed 'Designated Medical Practitioner' for Immigration Canada. The Consulate had pulled out because it had discovered an unacceptable conflict of interest. He disagreed. He said it was called by Dr Cheung who a short time before had left the Asia Medinet partnership with the partnership owing money, and he wanted to deal with his responsibility to meet his share. He said the plaintiff did, at the meeting, complain to him that he, the defendant, owed him $3m. He said that he did not; the plaintiff's demand was based on a lie. It was put to him that when the plaintiff had the proposed agreement drafted, he did so on terms agreed back in 1996. He denied that. It was put to him that that was why he paid $58,000 as a non-refundable deposit. He denied that. He said he paid it because: 'He was putting pressure on me.'

60. Then he was taken back to the loss of business caused when the Canadian Consulate-General terminated its contract. He agreed that the Consulate had pulled out. But he reiterated that there was no conflict of interest or complaint of that. But then he was shown a letter from the Consulate which I now reproduce in full:

	"Dr. Kerry Kennedy
	Consulate General of Canada
	11th Floor, Tower 1
	Exchange Square
	8 Connaught Place
	Hong Kong
	August 18, 1999
Dr Paul Chiang
New Pioneer International
Medical Centre
7th floor, Grand Building
15-18 Connaught Road
Central, Hong Kong

Dear Dr. Chiang, It is with regret that I must inform via this letter of the termination of New Pioneer (International) Medical Centre Limited's role as Designated Medical Practioners for Immigration Canada. This decision was mainly due to the continued presence and association of New Pioneer Medical Centre to New How Consulting (Shanghai) Co. Ltd., both in your offices in Shanghai and Guangzhou. We understand that the manager of New How is residing in and working out of your premises in Shanghai. We have confirmed that the fax number for your doctor in Guangzhou and yourself is the same as the fax number of New How and that this fax machine is on the premises of New Pioneer's office in Guangzhou. It is also disturbing to learn that Dr. Joseph Wong is signing the medical examination forms of our clients without seeing and examining the client. He told this to me himself in my last trip, naively thinking that this was our proscribed procedure - not yours or that of one of your associates. Despite your past denial of having anything to do with New How, and considering the current state of affairs in your Shanghai office, I have no option but to delete your doctors names from our DMP affairs in your Shanghai office, I have no option but to delete your doctors names from our DMP list. Please desist doing immigration medical for Citizenship and Immigration Canada upon receipt of this letter in both Shanghai and Guangzhou. Also, please return our DMP stamps.

Sincerely yours,

(Signed)

Kerry Kennedy M.D.

Medical Consul"

61. Then he had to concede that there was a complaint. The letter, as can be read, spelt out the cause of the complaint; namely, that the company called New How Consulting (Shanghai) Co. Limited (New How), purportedly operated by him, was an immigration consultancy that was thus directly connected with the medical practice which was required to undertake on an independent basis medical examinations for those applying for Canadian immigration. Asked if he was in fact connected with New How he responded spontaneously and firmly: 'No!' Asked if he had anything to do with New How, he said again: 'No'. Asked if he was a director of New How he repeated: 'No'. It was put to him: 'Are you sure?' This time he said: 'I can't remember'.

62. Then it was that he was shown documents of incorporation of New How, which recorded that he is its sole director and its general manager. And the company called New Pioneer Holdings Limited, of which he is the holder of all but one share, was the recorded sole shareholder. He admitted all these details were correct. At this point he made convoluted attempts to distance New How and himself from any irregular practice and sought to justify his earlier answers that there was no conflict. These were laboured and unconvincing and I do not propose to repeat what he had to say.

63. It was put to him that he was, in truth, the major role player in China Health and its subsidiaries; that the others were variously doctors running their own practices or full time employees of major corporations. He disagreed.

64. That was the case for the defence.

Findings of Fact

65. Although this sub-heading presupposes express findings of fact, the way the evidence has unfolded I now find it impossible to make any definitive findings on matters directly related to the case. What has emerged is that the defendant clearly cannot be relied upon as a witness of the truth, which he is prepared to distort or ignore if it suits his purpose. His initial responses to questions concerning the former contract with the Canadian Consulate-General left him high and dry when the documentation was shown to rebut his assertions of innocence. Furthermore I have the letter from the Consulate, whose contents I have no reason to doubt are true. It reveals he ignored the morality of proper trade practice by representing both the medicos and the immigration consultancy without declaring that conflict and then lied about it when confronted. Furthermore he instructed at least one doctor to ignore his professional obligation and certify the health of individuals not examined. In short the defendant has revealed himself to be a man of low moral character, capable of bending or ignoring the rules as the need arises and not averse to fabricating sworn testimony to protect his interests. Certainly his evidence cannot be relied on.

66. However his predilection to distort the truth does not of itself prove the plaintiff's case. There is nothing concrete I can turn to that supports the plaintiff's spoken word about a condition or collateral contract, the existence of which the defendant denies. The best I can do is to review the surrounding circumstances; pay heed to what are straws in the wind, and thereby try to find where the truth lies.

67. Without doubt the NASDAQ listing was an essential ingredient in the plaintiff's proposal of mid 1996; the draft agreement is proof of that. If, as he asserts, it was a crucial ingredient when he came to invest in December, it is hard to comprehend why a man whose professional duties are to ensure that the i's are dotted and the t's crossed in contracts he is overseeing for his employer, would be so lackadaisical in the investment of his own money as to rely on the spoken word; without so much as a scribbled note, particularly when dealing with a man whose trade record was not good. Surely it would have been simple, and prudent, to insist that all the terms of the investment, including the indemnity, be recorded and signed before outlaying $3m. The plaintiff's explanation that the defendant was harrying and hustling him into paying the money is hardly convincing. And if, as he said, the defendant refused to put it in writing the logical response would have been: 'It must be in writing. Speed up the paper work and you will have your cheque. Until we have a contract properly drawn and signed I will not pay.'

68. What also is hard to understand if the plaintiff is to be believed is his approach to recover his money when the NASDAQ listing failed to materalize by due date. He said he spoke to the defendant on a number of occasions but he was hard to pin down; the money did not materialize; sometimes the defendant even denied liability. Surely the natural course would have been to write, setting out the transaction, demanding satisfaction and pursuing this with more demands followed by a writ if necessary. But he did none of that, at least not for several years.

69. Taking a step forward to 1998 he said the defendant invited him to attend a meeting with the Singapore bankers to promote the proposed listing on the Singapore Exchange. By doing so, albeit as a passive observer, he was behaving like a shareholder in a company keen to know where the company is heading. I should have thought the appropriate response to the invitation would have been: 'Why should I attend? I have no interest in the company. You owe me the money I invested. The shares I hold are yours and I shall transfer them to you when you honour your obligation, long overdue.'

70. Furthermore, the letter of commendation he wrote at the defendant's request, and the shareholders' resolution he signed were untoward activities also undertaken in 1998, indicating there was none of the hostility between the parties which one would expect with one of them in substantial default.

71. The three fellow shareholders all said they heard the defendant acknowledge a personal commitment to refund to the plaintiff his investment at the meeting of December 1999. But they all have their own difficulties with the defendant. John Yao and W L Cheung have been or are presently engaged in litigation with him. Alex Chow is a longstanding friend, fellow investor and confidant of John Yao. John Yao said he had lost all of his $6m invested in China Health. One assumes that the others have also lost theirs. All blamed the defendant for the loss. These are matters which have to be taken into account in weighing their accounts. It would have been helpful if someone had taken minutes of the meeting to record what was said. It seems that was not done; certainly none were produced.

72. It would also have been helpful to have heard what Bill Lam had to say about the negotiations that the defendant said he had with the plaintiff which led to the investment in December. His reasons for not having him called were not satisfactory.

73. The defendant's readiness to pay $3m for the plaintiff's shares when as a result of the financial reversals they would have been worth less than the subscribed price and may, in fact, have been worthless, presupposes a price already fixed. His explanation that it was worth $3m to preserve the Hotel Nikko contract with Asia Medinet was most unconvincing and self-serving; like most of what he had to say. And why pay $58,000.00 or any money, until the deal had been signed? On the other hand, there was no preamble in the draft agreement that the plaintiff's solicitors had prepared that it was in conformity with the terms of the plaintiff's original subscription.

74. Some of the matters I have reviewed favour the plaintiff's account. But in my view they are outweighed by those which detract from it. The burden being on the plaintiff to prove his case that he is due $3m plus interest and the $58,000.00 was a non-refundable deposit, I cannot, in the event, be satisfied on a balance of probabilities that he has done so.

75. On the other hand, the defendant has proved the $58,000.00 as refundable in the event, as transpired, there was no agreement for the sale and purchase of the shares.

The result

76. The plaintiff's claim is dismissed. There will be judgment for the defendant on the counterclaim, including interest at prime rate from 14 March 2000 to this date.

Costs

77. The order I make will be nisi at first instance because I do so without the benefit of argument. But I give brief reasons in order to assist the parties in deciding whether or not to return to argue these.

78. In the normal course costs follow the event unless the Court, in its discretion, decides on an alternative course. The defendant has succeeded in his defence and counterclaim. But I have already expressed my displeasure at his conduct, and that includes his performance in the witness box under oath. Accordingly I depart from the normal course and order that there be no order for costs.