HUEN WAI KEI AND ANOTHER v. CHOY KWONG WA CHRISTOPHER AND ANOTHER

CACV 140/2013, CACV 159/2014 AND HCMP 1799/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 140 OF 2013, 159 OF 2014 AND

MISCELLANEOUS PROCEEDINGS NO. 1799 OF 2014

(ON APPEAL FROM HCA NOS. 1093, 1242 AND 2140 OF 2006)

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court):

Introduction

1.  The main appeal before us (CACV 140/2013) is an appeal against the judgment of Suffiad J in three consolidated actions after an eight-day trial in January 2012.  We will refer to Huen Wai Kei (“Huen”) and China Gain Corporation Limited (“China Gain”) collectively as “the plaintiffs”, and Choy Kwong Wa Christopher (“Choy”) and Raking Limited (“Raking”) collectively as “the defendants”.  The judge handed down his reasoned judgment (“the Judgment”) on 28 May 2013.

2.  As the terms of the order drawn up pursuant to §§383 and 384 of the Judgment are of vital importance to the issues raised in the main appeal which is the defendants’ appeal, it is appropriate that we set out in full the relevant parts of the order at the outset:

“It is adjudged that: -

(1) the above-named Defendant, Choy Kwong Wa Christopher (“Choy”) do pay the above-named Plaintiff, Huen Wai Kei (“Huen”) the sum of HK$30,000,000.00 together with interest thereon at the rate of 1% above prime rate from the date of writ to the date hereof and thereafter at the judgment rate until full payment;

(2) in the alternative, being alternative to the judgment sum of HK$30,000,000.00 above, an order for specific performance by the above-named Defendant, Raking Limited (“Raking”) of the Agreement for Sale and Purchase by assigning the properties known as Flat A, 53^rd Floor, including the flat roof thereof, and 55^th Floor, including the flat roof thereof, being a duplex of South Tower 5 of Residence Bel-Air, Island South, together with car parks nos. 273 and 274 on car park level 3, free from encumbrances to the above-named Plaintiff, China Gain Corporation Limited (“China Gain”) and to set off the set[1]consideration of HK$38,400,000.00 against the said judgment sum of HK$30,000,000.00 together with interest awarded thereon;”.

3.  We will refer to these paragraphs as “§(1) of the judgment order” and “§(2) of the judgment order”.

4.  It is the primary contention of the defendants in this appeal that §(2) of the judgment order was wrongly made and that the judge should not have ordered in the alternative to the judgment sum in §(1) specific performance of the sale and purchase agreement.

5.  There was also before us an application of the plaintiffs for leave to appeal against a decision of the judge on 10 July 2014 (“the Decision”) in which he dismissed a notice of motion issued by the plaintiffs on 10 March 2014 for certain orders said to be supplemental to §(2) of the judgment order.  This is HCMP 1799/2014.  At the start of the hearing, we granted leave to appeal on the grounds in the draft notice of appeal annexed to the summons.  The plaintiffs’ appeal is CACV 159/2014.

6.  Leave was also granted to the defendants to further amend their re-amended notice of appeal to raise additional grounds of appeal in the draft before us.

7.  Before going to the contentions raised in the defendants’ appeal and the plaintiffs’ appeal, it is appropriate to set out the relevant background matters and relate the material findings in the Judgment and the Decision.

8.  Three witnesses were called to give evidence.  The plaintiffs’ witnesses were Huen and a solicitor from Shea & Co, Leung Suk Chong Annie (“Annie Leung”), who acted for him at the material time.  Choy alone gave evidence for the defendants.  The witnesses on both sides gave diametrically opposed evidence.

9.  The judge accepted the evidence of Huen and Annie Leung on all the main issues and the plaintiffs’ case in its entirety on the facts and rejected the evidence of Choy[2].  Mr Benjamin Chain, who appeared for the defendants in this appeal but not below, made clear that he would not challenge any of the findings of fact made by the judge and in fact would rely on the judge’s findings of fact for the defendants’ appeal.

The background

10.  For present purpose, the background matters may be stated as follows.

11.  Huen and Choy were shareholders and directors of Pacific World Asset Management Limited (“PWAM”), which was registered with the Securities and Futures Commission and licensed to carry on regulated activities at the material time including advising on securities and assets management.

12.  China Gain is a company controlled by Huen.  Raking is a company owned by Choy and his wife but largely controlled by Choy and at the material time was the registered owner of the properties referred to in §(2) of the judgment order (“the Properties”).

13.  In 2005, disagreement arose between Huen and Choy over the affairs of PWAM.  With a view to resolving their disputes, they signed an agreement dated 26 October 2005 headed “Agreement for Sale and Purchase of Shares” by which Choy agreed to purchase all Huen’s shares in PWAM for $40 million (“the Shares Agreement”).  Provision was made regarding the payment of the purchase price in clause 2 of the Shares Agreement.  There is no dispute that Choy made the initial payment of $10 million.  As for the balance of $30 million, on the signing of the Shares Agreement and pursuant to clause 2, Choy gave Huen three post-dated cheques of $10 million each, post dated to 25 January 2006, 25 April 2006 and 25 July 2006 respectively.

14.  On 4 November 2005, the parties made a further agreement which was an oral agreement.  This was referred to in the pleadings and the Judgment as “the Security and Set-Off Agreement”.  We will adopt the same term.  It is pertinent to note how this agreement was pleaded in §8 of the consolidated statement of claim:

“As a result and with a view to finalizing the settlement of their aforesaid disputes regarding the affairs of PWAM, it was agreed between Mr Huen and Mr Choy on behalf of themselves and on behalf of China Gain and Raking respectively at the Meeting [i.e. a meeting held on 4 November 2005] (“Security and Set-Off Agreement”) that:

(1) the [sic] Mr Choy would procure Raking to put up the Properties as a security and/or as a guarantee for his liability to pay for the Shares [i.e. the shares of Huen in PWAM] under the Shares Agreement;

(2) in the event Mr Choy shall default in making payment under the Shares Agreement, he would procure Raking to and Raking would assign the Properties to China Gain and the consideration for the purchase thereof shall be set-off against the amount in default.”

15.  We will later mention in detail the evidence and the findings in the Judgment concerning this agreement which is of vital importance to this appeal.

16.  Annie Leung was instructed about the Security and Set-Off Agreement and was asked to “just prepare simple documents regarding the guarantee”[3].  Pursuant to those instructions, she prepared three documents which were signed by the parties as follows:

(1)    Huen and Choy signed a “Memorandum of Agreement for Sale and Purchase” (“the Memorandum”) dated 4 November 2005, whereby Raking agreed to assign the Properties to China Gain for the consideration of $38.4 million.  The Memorandum provided that the “conveyance on sale” pursuant thereto should take place on or before 4 February 2006, vacant possession should be delivered by Raking to China Gain and upon completion of the sale, the Property should be delivered to China Gain “free from all incumbrances”;

(2)    Huen and Choy further signed an agreement supplemental to the Shares Agreement which was dated 4 November 2005 (“the Supplemental Agreement”), stating among other matters that the parties procured the signing of the Memorandum as “a guarantee of payment of the Sum”, being the purchase price of $40 million that Choy was liable to pay Huen under the Shares Agreement; and

(3)    China Gain and Raking signed an Agreement for Sale and Purchase dated 8 November 2005 (“the S&P Agreement”) by which Raking was to sell the Properties to China Gain at $38.4 million.  The S&P Agreement contained a receipt clause that $3.84 million was paid by China Gain to Raking as deposit and part payment of the purchase price upon the signing of the agreement.

17.  The Properties were mortgaged to the Standard Chartered Bank (“the Bank”) at the time with an outstanding mortgage loan of around $16 million.  As Choy had represented to Huen, the then market value of the Properties was around $38 million.  Thus, the Properties would have a net equity value of around $22 million in November 2005.

18.  On 11 January 2006, the parties agreed to extend the time for completing the S&P Agreement from 4 February 2006 to 4 May 2006.

19.  The three post-dated cheques were all dishonoured and no part of the balance being the $30 million was paid by Choy.

20.  By a letter dated 2 May 2006 from the plaintiffs’ solicitors to the defendants’ solicitors, they mentioned that the cheques were dishonoured on presentation for payment and that China Gain was ready to complete the sale and purchase of the Property on 4 May 2006 subject to the following terms: (1) China Gain should pay part of the purchase price by payment of the redemption money for discharge of the existing mortgage in favour of the Bank; (2) the balance of the purchase price should be stakeheld by the purchaser’s solicitors upon satisfaction of payment of the $30 million due by Choy to Huen; and (3) save as aforesaid, all the terms of the S&P Agreement should remain unchanged.

21.  Completion of the sale and purchase did not take place and on 26 May 2006, the defendants’ solicitors wrote to the plaintiffs’ solicitors alleging that the plaintiffs failed to complete the sale and purchase of the Property in accordance with the S&P Agreement and had repudiated the same and the defendants accepted the repudiation.

22.  The plaintiffs brought proceedings against the defendants in three separate actions in 2006 and these actions were ordered to be consolidated in 2007.

23.  The consolidated statement of claim, having pleaded the Security and Set-Off Agreement in §8, went on to plead in §15 that by virtue of the dishonour of the cheques and failure to pay the balance of the purchase price under the Shares Agreement, “China Gain was and still is entitled to have the Properties assigned to it pursuant to the S&P Agreement and the Security and Set-Off Agreement.” §16 averred that China Gain were at all times and still are ready and willing and able to complete the S&P Agreement.  In the prayer for relief, Huen claimed against Choy:

“(1) (a) The said sum of HK$30,000,000, being the amount payable under the 1^st, 2^nd and 3^rd Cheques.

(b) As an alternative to (a) above, the said sum of HK$30,000,000 as a debt under clause 2(b) of the Shares Agreement.

(c) As a further alternative to (a) and (b) above, damages for wrongful breaches of the Shares Agreement.

(2) As an alternative to (1) above, an Order that Mr Choy do forthwith specifically perform the Security & Set-Off Agreement by procuring Raking to assign the Properties free from encumbrances to China Gain and to set off the said consideration of HK$38,400,000.00 against the said sum of HK$30,000,000 or such amount as may be in default under the Shares Agreement at the time of completion.”

24.  China Gain also claimed against Raking as an alternative to Huen’s claim for $30 million an order for specific performance of the S&P Agreement and to set off the consideration as in the prayer §(2), as well as damages in addition to, alternatively in lieu of, specific performance.

The findings in the Judgment

25.  The judge rejected Choy’s defences in total that the Shares Agreement was not enforceable because of frustration of contract in that the primary purpose of the agreement had failed[4], or that there was a collateral agreement[5], or that there was an oral agreement between him and Huen on 3 November 2005 to cancel the Shares Agreement and release each other from their mutual obligations[6].  He also rejected Choy’s evidence that after cancellation of the Shares Agreement, he and Huen had made an oral agreement on 4 November 2005 that Choy would pay Huen $40 million on condition that Huen would refrain from interfering with Oria Capital Management Limited being put forward as a replacement manager and that the sale and purchase of the Properties would proceed as a normal sale and purchase transaction and hence the S&P Agreement was signed on 8 November 2005[7].

26.  The judge concluded that Choy gave deliberately untruthful evidence in an attempt to wriggle out of his liability under the Shares Agreement and Raking’s liability by way of security or guarantee under the Security & Set-Off Agreement, the Memorandum, the Supplemental Agreement and the S&P Agreement[8].

27.  The judge made these material findings:

(1) The Shares Agreement had not been cancelled between Huen and Choy[9].

(2) The Memorandum and Supplemental Agreement were as a result of Choy agreeing to put forward the Properties as security or by way of guarantee for the liability of Choy under the Shares Agreement[10].

(3) The S&P Agreement did not stand alone.  It was preceded by the Memorandum and the Supplemental Agreement.  When looked at together, it was made expressly clear in all those documents that the S&P Agreement for the sale and purchase of the Properties was to be security for Choy’s liability under the Shares Agreement.  Nothing could have been clearer[11].

(4) There was no oral agreement between Choy and Huen whereby they agreed to proceed with the sale and purchase of the Properties under the S&P Agreement as a normal sale and purchase transaction but that at all times it was well understood that the Properties, the subject matter of the S&P Agreement was to be used as security or guarantee for the liability of Choy under the Shares Agreement, as agreed by them under the Security & Set-Off Agreement[12].

(5) Annie Leung included the receipt of deposit clause in the S&P Agreement because that was on the template when there was no need for that clause as the agreement was intended to be security.  In fact no such deposit had ever been paid by Huen and there was no question of payment of any deposit, since the consideration for the sale would be set off against any payment in default by Choy[13].

(6) Annie Leung used the S&P Agreement instead of the usual guarantee or security because the Properties had already been mortgaged to the Bank for some $16 million and if the documentation was done in the usual form of utilizing the Properties as security or guarantee, consent of the mortgagee would have to be obtained[14].

(7) Choy is liable to Huen for the dishonour of the three cheques in the total amount of $30 million, alternatively, the said sum of $30 million as being a debt under the Shares Agreement[15].

28.  Accordingly, the judge gave judgment to Huen for $30 million against Choy with interest[16].  This is §(1) of the judgment order.

29.  In the closing submission at the trial, leading counsel for the plaintiffs (not Mr Adrian Bell, SC, who appeared with Mr Albert Cheung on appeal) asked the court to enter judgment against Choy and Raking in the way as pleaded by him in the prayer for relief in the consolidated statement of claim[17].  So having accepted the plaintiffs’ case in its entirety on the facts, the judge acceded to counsel’s submission and gave judgment in the alternative making an order for specific performance of the S&P Agreement by assigning the Properties free from encumbrances to China Gain and to set off the consideration of $38.4 million against the judgment sum of $30 million with interest[18].  This is §(2) of the judgment order.

What happened after the Judgment

30.  No part of the judgment sum of $30 million was paid by Choy to Huen after the Judgment was handed down on 28 May 2013.

31.  The market value of the Properties has appreciated greatly over the years and its value in 2013 was double that in November 2005.

32.  Having obtained a judgment which provided for reliefs in the alternative, the plaintiffs promptly made their election by a letter of their solicitors to the defendants’ solicitors dated 5 June 2013 in which they recited §§(1) and (2) of the judgment order and called on Raking to assign the Properties to China Gain within 21 days.  The plaintiffs’ solicitors noted that in the Land Office there were pending registration against the Properties a provisional agreement for sale and purchase dated 6 May 2013 and an agreement for sale and purchase dated 20 May 2013 and they requested the defendants’ solicitors to advise the purchaser to apply for cancellation of registration as Raking was bound by the Judgment to assign the Properties to China Gain.

33.  The defendants’ solicitors replied by letter the next day stating that the plaintiffs’ solicitors had misconceived the Judgment.  They pointed out if the plaintiffs had the right to call on the defendants to assign the Properties to China Gain in lieu of asking for the judgment sum, the plaintiffs would get more than the amount awarded to them.  They referred to the findings in the Judgment, the evidence at the trial and the correspondence between the parties before and after the trial in support of their position that the S&P Agreement was a security to ensure due payment by Choy pursuant to the Shares Agreement and nothing more.  They called on the plaintiffs to release the security and vacate the registration of the lis pendens upon payment of the judgment sum.

34.  On 11 June 2013, the defendants’ solicitors wrote to the judge’s clerk enclosing the correspondence between the parties and requested the judge to clarify the Judgment.  They submitted that it was only in the event that Choy failed to comply with the monetary judgment then Huen could choose to exercise the right in §(2) of the judgment order.  They also made the point that as the existing mortgage loan was about $12 million and the defendants entered into a provisional agreement in May 2013 to sell the Properties at $77 million, the net proceeds of $65 million would be more than enough to satisfy the judgment sum including interest.

35.  The judge’s clerk replied on 13 June 2013 conveying the judge’s direction that there was nothing to clarify, either the defendants were to pay up the judgment sum with interest forthwith or else the plaintiffs would be entitled to enforce the order for specific performance.  That would appear to accord with a more detailed explanation given subsequently by the judge in the Decision:

“62. The right to specific performance may have accrued in 2006. However, Huen initially issued a writ claiming for HK$30 million and interest against Choy[19]. Later another writ was issued being a claim by China Gain against Raking for specific performance of the S&P Agreement. When these claims were consolidated, in the Consolidated Statement of Claim, the claim for specific performance by China Gain against Raking was a claim in the alternative to the monetary claim of Huen against Choy. It would follow that if Choy had satisfied the monetary judgment against him with interest, the order for specific performance against Raking would no longer have effect.

63. Bearing in mind that the order for specific performance against Raking was made only as an alternative to the monetary judgment against Choy, that order for specific performance would only kick in when and if Choy defaulted in meeting the monetary judgment against him.”

36.  Apart from lodging an appeal against the Judgment, the defendants issued a summons in the proceedings below on 12 July 2013 seeking to vacate the registration against the Properties of the writ in the action brought by China Gain against Raking and a declaration that the S&P Agreement “is of no further effect”.  That application was heard by Deputy High Court Judge Leung and was dismissed on 8 November 2013.  The deputy judge held that the defendants failed to satisfy the court there was good cause to justify vacating the registration and he must take the Judgment and §§(1) and (2) of the judgment order as they are.  The defendants appealed against this judgment as well but later abandoned their appeal.

The plaintiffs’ application for supplemental orders and the Decision

37.  On 24 January 2014, Huen came to know that the Bank was in the course of exercising its power of sale under the mortgage and his solicitors wrote to the Bank in an attempt to stop it from selling the Properties.  By letter dated 28 January, the Bank’s solicitors informed the plaintiffs’ solicitors that it had already entered into an agreement to sell.  The Bank subsequently sold the Properties for $77 million and the outstanding liabilities from the mortgage were in the region of $17 million[20].  In April 2014, the Bank issued interpleader proceedings as regards the net balance.  This application has yet to be heard.

38.  On 10 March 2014, the plaintiffs issued a notice of motion in the proceedings below seeking these orders supplemental to the Judgment that in respect of the agreement for sale and purchase of the Properties entered into between the Bank and the purchaser on 24 January 2014:

“1.1 insofar as any of the proceeds of sale of the Properties are used to discharge any mortgage given by [Raking] in favour of the Bank (including any costs and expenses incidental to such discharge), the Defendants and each of them do pay [China Gain] and/or [Huen] an equivalent amount;

1.2 the Defendants and each of them do cause the Bank to pay the balance of the proceeds of sale of the Properties to [China Gain]”.

39.  The plaintiffs sought the supplemental orders on these grounds.  Choy’s obligation to pay the $30 million arose in 2006, and by the Judgment the court had accepted the plaintiffs’ claim in its entirety.  Choy failed to pay the judgment sum and Raking failed to assign the Properties to China Gain.  Raking allowed default of its mortgage obligations so as to subvert the Judgment and caused the Properties to be sold by the Bank to a third party thereby depriving the plaintiffs of their entitlement under the Judgment to have the Properties transferred to China Gain.  Further, by §(2) of the judgment order, China Gain was entitled to an assignment of the Properties free from encumbrance.  The defendants must therefore make good any shortfall in the unencumbered value of the Properties caused by the Bank deducting the amount of the mortgage, costs and expenses from the proceeds of sale.

40.  The application was heard by the judge on 4 June 2014 and the Decision was handed down on 10 July 2014.  He declined to make the orders sought, taking the view that although there is inherent jurisdiction to make supplemental orders after trial given the proper circumstances, the orders sought by the plaintiffs went beyond the ambit of a supplemental order and were tantamount to an assessment of damages without there being an inquiry as to the damage[21].

The contentions in these appeals

41.  Mr Chain submitted for the defendants that §(2) of the judgment order was wrongly made, for a number of reasons.

42.  First, having found for the plaintiffs that the Properties were put up by the defendants as security or guarantee to secure the performance of Choy’s liability to pay under the Shares Agreement, and that it was clear the S&P Agreement was to be security for Choy’s liability under the Shares Agreement, it was wrong to order specific performance of the S&P Agreement as if this was a normal and genuine transaction for sale and purchase.  The S&P Agreement did not have an independent existence and the true agreement between the parties could not have required Raking to assign the Properties free from incumbrances.

43.  Second, the Security and Set-Off Agreement was not enforceable.  No consideration for this agreement was pleaded by the plaintiffs.  And it is clear on the evidence there was no consideration for it.

44.  Third, having held in favour of the plaintiffs the existence of the Security and Set-Off Agreement, the judge was wrong to regard this as a case of alternative remedies as pleaded in the prayer of the consolidated statement of claim.  The agreement to provide security was a cumulative, not an alternative, remedy to the plaintiffs.

45.  Fourth, if this were truly a case of alternative remedies and inconsistent rights (the right to be paid in money the full amount of the indebtedness, and the right to have an assignment of the Properties without having to make payment), the plaintiffs should be required to elect which remedy they would seek when judgment was being entered against the defendants (The Personal Representatives of Tang Man-sit (deceased) v Capacious Investments Limited [1996] 1 HKLR 16 at 20D to E).  It was wrong in principle to give judgment in the alternative granting alternative and inconsistent remedies to the plaintiffs.

46.  Mr Bell submitted it was not open to the defendants to advance these new arguments for the first time on appeal, by virtue of the principle in Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356, as stated by Bokhary PJ at §§38 and 39:

“38. … Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.

39. Clearly the foundational imperative of the ‘state of the evidence’ bar, as I propose to call it, is fairness …”

47.  Mr Bell submitted that the propositions the defendants sought to advance on appeal were not put, or squarely put, to Huen or Annie Leung and Choy was not cross-examined about these matters, so they were not fully explored in evidence.  And it would not be right to allow a party to take a position on appeal that is diametrically opposite to his pleaded case on which he gave evidence, which was rejected by the trial judge.

48.  Mr Bell further contended that the S&P Agreement was the agreement reached by the parties on how to deal with the situation if Choy should default on his indebtedness and the agreed remedy was that China Gain would be entitled to an assignment of the Properties from Raking free from incumbrances.  Both parties were represented by separate solicitors at the time and there was no suggestion that Choy was not aware of the contents of the Memorandum and the S&P Agreement.  If it is alleged that these signed agreements did not reflect the true intention of the parties, unless the defendants were to make out a case for rectifying the S&P Agreement, and they had not advanced a claim for rectification below, the S&P Agreement must be given effect and specifically performed.  The court is not to re-write the agreement for the parties.

49.  As for the requirement of the plaintiffs to make an election of alternative remedies when judgment was being entered, Mr Bell submitted that it was also said by the Privy Council in Tang Man-sit at 20H to J that the principles regarding election between alternative remedies are “not fixed and unyielding rules” but are the means to an end, that proceedings should be conducted in a manner which strikes a fair and reasonable balance between the interests of the parties, having proper regard also to the wider public interest in the conduct of court proceedings.  Counsel submitted that given the terms of §§(1) and (2) of the judgment order, which granted relief to the plaintiffs in the alternative, the plaintiffs were entitled to make their election a few days after judgment was entered and the belatedness of their election did not prejudice the defendants, just as in the comparable fact situation in Tang Man-sit at 23I to 24B.

50.  The plaintiffs’ appeal against the Decision is premised on the basis that §(2) of the judgment order was correctly made.

51.  Mr Bell’s contention was that the judge erred in holding that the orders sought went beyond the ambit of a supplemental order and therefore failed to exercise his discretion whether such orders should be made.  He referred us to the same authorities he cited to the judge, including Hong Kong Civil Procedure 2014, vol 1, §20/11/6 (3); Snell’s Equity (32^nd ed) §17-053; Ford Hunt v Singh [1973] 1 WLR 738 at 740C to 741H; Northern Counties Securities Ltd v Jackson & Steeple Ltd [1974] 1 WLR 1133 at 1137H to 1138B; and Aumac Limited’s Patent [1995] FSR 501 at 510 to 511, to support his contention that a variety of supplemental orders could be made consequent upon a failure to perform an earlier order, coupled with facts not available at the time when the earlier order was made.  The purpose of the orders sought by the plaintiffs was to remedy the situation, unforeseen at the time of the Judgment, that the order for specific performance could not be performed.

52.  Mr Chain submitted that the judge was correct in declining to make the orders sought.  Where there are changed circumstances and the order for specific performance cannot be complied with, the correct procedure is to apply to discharge the decree of specific performance and proceed to an inquiry as to damages, see the Decision at §72 and Johnson v Agnew [1980] AC 367 at 394B to D.  Damages claimed in this instance are unliquidated and have yet to be assessed.  Various other matters would have to be taken into account on an inquiry as to damages, especially given that minutes of order pursuant to the Judgment were not drawn up and a date was not even appointed for the specific performance of the S&P Agreement.  As the judge had said in §68 of the Decision, the orders sought were effectively an assessment of damages without there being an inquiry as to damages.  Mr Bell accepted that the orders sought would give the plaintiffs practically all that they would be asking for in an inquiry as to damages.

53.  It would be appropriate to consider Mr Bell’s argument on the Flywin principle first, because if we agree with him the defendants should be barred from advancing most if not all of their new arguments, the defendants’ appeal would not get off ground regardless of the merits of their arguments.

Was this a situation within the Flywin principle

54.  As we understand Mr Bell’s submission, he was not suggesting that if the propositions advanced on appeal had been put to the plaintiffs’ witnesses, who were found to be truthful witnesses, they would give evidence that is to depart from their testimony already given.  He could not point to specific further evidence that could or would have been given by these witnesses.  All that he was able to say was that the points now sought to be taken on appeal were not fully explored with the witnesses at the trial.  So it would appear to be a case that if the matter had been fully explored, the plaintiffs’ witnesses might be expected to add to their testimony, giving evidence that would be “more of the same”.

55.  We do not think the evidence of Choy would be relevant for present purpose, as he was found to be deliberately untruthful and his evidence was rejected by the judge and Mr Chain has not sought to rely on any part of his evidence on appeal.  Nor do we think it would be wrong in principle to allow a party to take a point at trial based on the acceptance of evidence given by the opposite side, notwithstanding that is inconsistent with his case for which he has adduced evidence to the contrary.  Whether he would be allowed to do so on appeal would depend on whether he is caught by the “state of the evidence” bar in the Flywin principle.

56.  The question then is whether there is no reasonable possibility that the state of the evidence relevant to the points taken on appeal would have been materially more favourable to the plaintiffs if these points had been taken at the trial.  This can only be answered by looking at the transcript of evidence.

57.  We have been taken by both sides to relevant parts of the transcript, and they are set out separately in an Annex so as not to overburden this judgment.  Having reviewed the evidence, we are satisfied there was thorough questioning of the witnesses below on matters relevant to the points sought to be taken on appeal.  We think it unlikely that Huen and Annie Leung, were they to be questioned further on these points, would have given evidence that would add materially to the evidence already given.  Testing this in another way, as submitted by Mr Chain, if the defendants had sought to take these points at the closing submission of the trial, it does not appear to us they should be barred from doing so, as the plaintiffs would not be able to point to further material evidence that could have been adduced had they known that such points would be taken.

58.  We therefore reject Mr Bell’s submission that this was a situation within the Flywin principle.  The defendants would not be barred from raising their new arguments on appeal.

The absence of consideration

59.  We would first deal with Mr Chain’s arguments that the Security & Set-Off Agreement was not enforceable as consideration for this agreement was not pleaded in the consolidated statement of claim and on the evidence there was no consideration for this agreement.

60.  Order 18 rule 7(1) of the Rules of the High Court stipulates that every pleading must contain a statement in a summary form of the material facts on which the party pleading relies for his claim or defence.  Hong Kong Civil Procedure 2014, vol 1, §18/12/7 reads as follows: “(6) Consideration – If this is for any agreement not under seal, it is a material fact and must be pleaded, except in the case of negotiable instruments, where it is presumed.”  No authority was cited in the commentary for this proposition, but Mr Chain was able to refer us to Clarke v Gray (1805) 6 East 564, which was mentioned in an old edition of Bullen & Leake & Jacob’s Precedents of Pleadings (13^th ed, 1990) p 269, and the relevant passage is as follows: “The consideration necessary to the validity of a simple contract must in general be shown upon the statement of claim (Myddleton v Kenyon Ltd (1782) 2 Ves Jun 391 p 408; Clarke v Gray (1805) 6 East 564).  But consideration need not be pleaded for agreements under seal, bills of exchange, promissory notes and cheques.”

61.  The Security & Set-Off Agreement, which was made orally, was not an agreement under seal.  In Clarke v Gray at 568, Lord Ellenborough CJ had this to say about an agreement not under seal:

“It is no more necessary to state every part of an agreement not under seal, each part making a distinct contract, than it is of an agreement under seal: it is sufficient in either case to state so much of each as constitutes that contract, the breach of which is complained of, prescribes the duty to be performed, and the time, manner, and other circumstances of its performance: with this difference only, that in the case of an agreement, not under seal, the consideration must be stated, and no part of the entire consideration for any promise contained in the agreement can be omitted.”

62.  Mr Bell submitted this old authority should be treated with circumspection as the law on consideration has developed since.  We are inclined to think the passage quoted above on the pleading of consideration remains good law.  Consideration for the Security & Set-Off Agreement is a material fact and should have been pleaded by the plaintiffs.  This was not done in §8 of the consolidated statement of claim, which has been set out in full in the earlier part of this judgment.

63.  Not only that, it is apparent on the evidence that there was no consideration for the Security & Set-Off Agreement, see the evidence of Huen set out in the Annex at Extract (2) and the evidence of Annie Leung at Extract (9).

64.  The parties had earlier entered into the Shares Agreement dated 26 October 2005 with a view to resolving their disputes over the affairs of PWAM.  And upon the signing of the Shares Agreement, Choy had procured the execution of the necessary transfer of the stated units in an arbitrage strategy fund to Huen and given him the post-dated cheques for the balance of the purchase price.  The Security & Set-Off Agreement came about because Huen asked Choy a few days later on 4 November 2005 for security or guarantee for Choy’s liability to pay the balance of the price.  It is Huen’s evidence that he did not offer to give Choy anything in return for the security, and Choy voluntarily offered the Properties as security.  Annie Leung’s evidence was to the same effect: when Choy was asked for security, he just agreed.  She was not aware of any additional reason why Choy should agree to Huen’s request to provide security.

65.  On the evidence, the Security & Set-Off Agreement, which was an afterthought to the Shares Agreement, was not supported by consideration.  The existence of Choy’s debt to Huen was not sufficient to support the promise Choy made on behalf of Raking to put up the Properties as security, nor was past consideration adequate to bind the parties to the Security & Set-Off Agreement subsequently made.  See BCCI Finance International Ltd v Aftab Ahmed [1991] 1 HKC 375.

66.  As held by the judge, the S&P Agreement did not stand alone, but must be considered with the Memorandum and the Supplemental Agreement, which preceded it.  The Memorandum and the Supplemental Agreement were entered into as a result of the Security & Set-Off Agreement.  And the clear intention of all these agreements was that the S&P Agreement was to be security for Choy’s liability under the Shares Agreement.  As the Security & Set-Off Agreement was not enforceable because it was not supported by consideration, the judge was in error to grant an order for specific performance of the S&P Agreement.

67.  For this reason alone, §(2) of the judgment order should be set aside.

The Properties as security

68.  It is not strictly necessary to consider the other reasons relied on by Mr Chain to set aside the order for specific performance.  We will address them because we regard the points raised to merit our attention.

69.  Assuming the Security & Set-Off Agreement was enforceable, by that agreement, as held by the judge, the S&P Agreement was to be used as security or guarantee for Choy’s liability under the Shares Agreement.  The parties were not to proceed under the S&P Agreement as a normal sale and purchase transaction.  The receipt of deposit clause was not meant to be in the S&P Agreement, but for the fact that it was in the template used by Annie Leung, as there was no question of payment of any deposit.

70.  We are also inclined to agree with Mr Chain that the provision in the Memorandum that upon completion the Properties should be delivered to the purchaser “free from all incumbrances”, which was repeated in the S&P Agreement, was likewise not intended to be performed (in the sense of the defendants providing the funds for discharge of the mortgage, as contended by the plaintiffs), contrary to the judge’s thinking that this was “a matter of contract between the parties”[22].  If indeed the Properties were to be assigned to China Gain free from incumbrances on completion, the plaintiffs must be required to pay at least the deficit of $8.4 million in 2006, being the difference between the consideration stated in the S&P Agreement of $38.4 million and the outstanding balance of $30 million in the price of the Shares Agreement which was to be set off against the $38.4 million.  But more tellingly the parties knew that Choy had no funds to discharge the mortgage, so if the Properties were indeed to be assigned to China Gain free from incumbrances, it should have been Huen who was to provide the funds to enable this to happen. That appears to be Huen’s understanding according to his evidence at Extracts (2) and (4) in the Annex, in which he mentioned that there was a mortgage loan of $16 million odd and he could only get the net equity of $20 million odd and would suffer a loss of a few million dollars.

71.  We think the S&P Agreement was a “sham” within the legal concept involved in this word as stated by Diplock LJ (as he then was) in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802, namely, that it was a document executed by parties which was intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create.

72.  Mr Bell submitted that until the S&P Agreement has been rectified, the parties are bound by it and so the court should give effect to this document.  But this is missing the point.  There is no dispute on the evidence and on the judge’s findings, which are accepted by all, that the true nature of the transaction was not a sale and purchase of property but a consensual security by which property was put up to secure the performance of a contractual obligation.  The court looks at the substance of the transaction, not merely at the form, in determining whether the real intention of the transaction is to provide security (Snell’s Equity, op cit, §37-003).

73.  The judge should not have ordered specific performance of the S&P Agreement because it was a sham on his findings and the legal rights and obligations created by that document were different from the actual legal rights and obligations the parties intended to create, namely, that the Properties were put forward as security to secure the performance of Choy’s liability under the Shares Agreement.

74.  What then were the actual legal rights and obligations the parties intended to create by the consensual security?

75.  As stated by Millett LJ (as he then was) in In re Cosslett (Contractors) Ltd [1998] Ch 495 at 508F to H, there are only four kinds of consensual security known to English law: (i) a pledge; (ii) contractual lien; (iii) equitable charge and (iv) mortgage.  A pledge and a contractual lien both depend on the delivery of possession to the creditor, whereas an equitable charge and a mortgage do not.  The present case would be either an equitable charge (where property is appropriated for the discharge of a debt but no interest in the property has been conveyed or agreed to be conveyed) or a mortgage.  The S&P Agreement might suggest there was to be a transfer of property interest, in which case it would be a mortgage.

76.  Regardless of whether the present case was an equitable charge or a mortgage, equitable principles and doctrines would come into play, among them the equitable right of the mortgagor to redeem at any time unless he is time-barred under the statute of limitation or the mortgagee can foreclose the mortgage, thereby extinguishing not only the debt but also the mortgagor’s right to redeem, with the effect that the mortgagee then acquires unencumbered ownership of the property.  It is a settled rule of equity that any agreement which interferes with the mortgagor’s equitable right to redeem is ineffectual (Snell’s Equity, op cit, §38-007).

77.  Insofar as the S&P Agreement purported to assign the Properties to China Gain in the event of Choy’s default vesting the entire legal and beneficial ownership in China Gain free from all incumbrances and thereby extinguishing the right of Raking to redeem the Properties, it is invalid at law.  It was wrong to order specific performance of the S&P Agreement.

78.  So for all the above reasons, §(2) of the judgment order cannot stand.

Alternative remedies

79.  It followed from what we have said that this is not a case of alternative remedies at all, contrary to the way this was pleaded in the consolidated statement of claim.  Rather, this is a case of cumulative remedies.  As stated in Tang Man-sit, supra at 21A to E, a plaintiff in this situation may pursue one remedy or the other remedy or both remedies, subject to the limitation that he cannot recover in the aggregate from one or more defendants an amount in excess of his loss, which, in the present case, was the outstanding indebtedness of $30 million with interest.

80.  The way §§(1) and (2) of the judgment orders were framed gave remedies to the plaintiffs in the alternative.  It would seem from the judge’s subsequent explanation in the Decision at §§62 and 63 quoted earlier that it might not have been his intention to give judgment for the plaintiffs in the alternative, in the sense of allowing the plaintiffs to choose between a right to be paid $30 million, or a right to take an assignment of the Properties without having to make any payment.  The judge had said that §(2) of the judgment order would “only kick in” if and when Choy defaulted in meeting the monetary judgment in §(1).  He went on to say in §64 that no order was sought by the plaintiffs as to any time limit for Choy to comply with §(1), “failure of which would set in motion the order for specific performance”.

81.  If that was the real intention of the judge, that was not correctly reflected in the form of alternative remedies given in §§(1) and (2) of the judgment order.

82.  The upshot of this was that the plaintiffs took advantage of the way these orders were worded and promptly elected for §(2) of the judgment order a few days after the Judgment was handed down.

83.  It is unnecessary to rest our decision in the defendants’ appeal on the arguments made about alternative remedies.  We would allow the defendants’ appeal and set aside §(2) of the judgment order as it should not have been made for the reasons given earlier.  As mentioned earlier, the net proceeds of sale of the Properties are the subject of interpleader proceedings by the Bank.  These proceeds would be more than sufficient to satisfy the monetary judgment in §(1) of the judgment order with interest.

The plaintiffs’ appeal

84.  Given our decision on the defendants’ appeal, the plaintiffs’ appeal would fall away and must be dismissed.

85.  In any event, we think the judge was entirely correct in declining to make the orders sought as that would be tantamount to awarding damages to the plaintiffs summarily without holding an inquiry as to damages.

Conclusion and costs

86.  We allow the defendants’ appeal and set aside §(2) of the judgment order.  We do not see any basis to interfere with the costs order of the proceedings below, as the defendants have only succeeded in this appeal on new arguments not raised at the trial.

87.  We dismiss the plaintiffs’ appeal.  We make an order nisi that costs of the plaintiffs’ appeal, including the costs of the leave application, be awarded to the defendants.

88.  As for the costs of the defendants’ appeal, we make an order nisi that the plaintiffs should pay the defendants’ costs of this appeal, save for the costs occasioned by work done in respect of the grounds of appeal seeking to challenge the findings of fact made by the judge in §§1 to 11 of the notice of appeal, which were only abandoned when the re-amended notice was filed on 7 July 2014. In respect of that part of the costs, which were incurred for work done and wasted, it seems to us it would be right that the defendants should pay the plaintiffs’ costs, and we make an order nisi accordingly.

Annex

Relevant extracts from the transcript of evidence at trial

[all page references are those of the transcript, not of the appeal bundles]

Evidence of Huen

Extract (1):

Q.  … My question to you is, as at 8 November 2005, would you be interested to acquire this Bel-Air property as a normal sale and purchase transaction?

A.  No, I would not be interested.

Q.  Any reason why you would not be interested?

A.  Yes.

Q.  What are the reasons?

A.  Because Mr Choy was putting up the properties as a guarantee.

…

Q.  … My question to you is at 8 November 2005 would you or would you not be interested in buying the Bel-Air properties as a normal sale and purchase transaction, and you told us you were not and you would not.  So what I’m now asking you is what was the reason that you would not be interested in buying the property?

A.  Because I was not interested at all to purchase any Bel-Air properties.

Q.  At that time, November 2005, if you were to have a choice would you prefer to receive payment in cash by Mr Choy or would you rather have the Bel-Air properties from Mr Choy?

A.  Cash.

[p 78 lines H to R]

Extract (2):

Q.  Now, how did you persuade Choy to give you extra security?

A.  I had further discussions with him.  I said, “Look, Mr Choy, you have just given me the three cheques.  I have no guarantee that you would transfer the money to me.”  Mr Choy said, “Just rest assured I have a property in Hong Kong and I am living and I am residing in it, which is worth more than $30 million, which is worth about $38 million odd.”  He said, “I can put up my property as a guarantee to you.”  I said, “I have no way to know what the mortgage loan in respect of your property is.”  He said, “The mortgage loan for the property is about $16 million odd.”

Q.  … Mr Huen, as a matter of common sense, if you want to bargain with someone to give you something extra usually you offer something back to that other person.  You were asking Mr Choy for something extra, namely, security.  What did you offer to give him back?

A.  No, I did not offer to give him anything in return.  I did not do so because he had done me wrong already.  Well, he had done me a lot of wrongs and I wanted compensation from him.  I was asking compensation from him for the wrong he had done to me.

Q.  So you are suggesting that on 4 November there was really no -- you did not assert any bargaining leverage on Mr Choy?  He just voluntarily offered the flat or the properties to you as security?

A.  Right.

Q.  Mr Huen, I suggest to you it makes no sense whatever the underlying rights or wrongs or ‘dong chu’ or somebody had done anything wrong.  That has all been taken care of by the share sale agreement of $40 million and there was no reason why he should volunteer the flats or the properties to you, do you agree or not?

A.  I disagree.  It was his offer.  He said, “I have a property.  I will put up the property as a security.”  One more point, let me do the calculation.  The property was only worth $20 odd million after deducting the mortgage loan.

Q.  Yes, I know.  You don’t have to repeat that.  The property was said to be worth $38 million.  The mortgage loan was 16 million and therefore the net equity was 22 million, that’s what you said.

A.  Well, but it was better than nothing.

Q.  And you say it’s all offered by him?

A.  No.  I had asked my lawyer, Annie Leung, to check it and she said the figure was right.

Q.  You asked Miss Leung to check on the spot on 4 November, on 4 November on the spot?

A.  I don’t quite remember.  I said to Annie, “Annie, you have been in the conveyancing business.”  I said, “Can you call your friends and cause a check to be made or ask your friend how much the property was worth?”  I don’t remember very clearly whether she called right away or subsequently how the check was made.  At the time when he put up his property as the security, I found it agreeable to me because even if I could only get back $20 odd million and suffer a loss of a few million dollars, it would be all right.

[p 120 line C to p 121 line E]

Extract (3):

Q.  On the same day a document called a supplemental agreement was also prepared by Miss Leung?

A.  Yes, agree.  In case he did not pay me, in case the cheques could not be honoured, the property would be used as a security.  The property would be given to me.

[p 122 lines P to Q]

Extract (4):

Q.  … But at the end of the day, this deal did not materialise and you and Mr Choy also agreed that the security transaction about the Bel-Air properties would proceed as a normal sale and purchase transaction of properties, agree or not agree?

A.  No, definitely not.  That was a guarantee for -- if he was going to give me cash, if his cheques to me were to be honoured I would get $40 million, but if I were to get his property it would be less than that.  If he was going to transfer the funds to me in the sum of $10 million, if I was going to get the $30 million by way of the cheques, then I would get $40 million.  But if he was not going to give me the cash for the property he put up as a security, there was a mortgage loan of 60 [should be “16”] million odd and I could only get 20 odd million.

Q.  Mr Huen, were you not interested at that time to acquire the property as a purchaser so that you could sell it off to acquire a profit as the confirm [should be “confirmor”] of sale?

A.  I was not interested.

…

Q.  Mr Huen, if the transaction was a security transaction then as long as Mr Choy pays you what he is supposed to pay you, you do not need to resort to the property, correct?

A.  Right, so long as he could pay me I would not resort to his property.  I would not resort to his property if I could get the $40 million.

[p 124 line T to p 125 line L]

Extract (5):

Q.  I asked you yesterday whether or not when you say you agreed with Mr Choy that he could -- that you would delay in paying in the cheques, whether you agreed with him a particular date by which you would pay him [should be “in”] a cheque -- the cheques.

…

A.  Mr Choy said to me, “The money is yet to come.  It will be coming later.  Can you bank in the cheques later.”  He spoke to me about it in January, and the cheque was almost due.  I said, “No problem, I can bank it later.”  As the completion date was scheduled to take place in January, so I told my lawyer that it was only a form of guarantee.  So I’d asked her to postpone the completion date for the sale and purchase of the property for three months as well, because all I wanted was to get cash.

[p 130 lines K to S]

Extract (6):

Q.  Now, and then this letter [of 2 May 2006] went on to say that you wanted to complete the sale and purchase of the property, and essentially you proposed terms whereby you would redeem the property from the bank, but then you need not pay the balance of the purchase price to Mr Choy to the extent of $30 million.

…

A.  Well, I understand it now this was prepared by my solicitors in attempt to set off the amounts within.  If the money was not sufficient, then payments would be made.  If there was surplus, it would be given to him.  If I got anything extra from the property, then I would return the same to him.

[p132 lines D to J]

Evidence of Annie Leung

Extract (7):

Q.  And then you said [in the witness statement], “Since I was instructed to just prepare simple documents regarding the guarantee, I prepared a memorandum of agreement for sale and purchase of the properties,” do you see that?

A.  Yes.

…

Q.  Now, with this in mind what I would like you to explain to us is what do you mean when you say, “I was instructed to just prepare simple documents regarding the guarantee”?  First of all, were you specifically asked to prepare a memorandum of agreement for sale or were you simply asked to prepare documents and then you took the liberty to prepare this memorandum?  What was the situation can you explain to us?

A.  As I understand, the property was under mortgage with Standard Chartered Bank.

…

A.  So as a conveyancing lawyer, what I thought was if I prepared a guarantee or a second mortgage we have to ask for the consent from the 1^st mortgagor.

Q.  The bank you mean?

A.  From the bank.  So I prepared the memorandum for them to sign on the spot.

Q.  Just to ensure that I understand you entirely, you just said that if you prepared a guarantee or a second mortgage you need to obtain the consent of the bank in its capacity as the 1^st mortgagee.

A.  Yes.

Q.  What was stopping you or Mr Huen or Mr Choy from obtaining the consent?

A.  We want to do it quickly.

Q.  When you say, “We want to do it quickly …”

A.  Mr Huen wanted to do it quickly, sorry.

Q.  Thank you.  So you were the one, in your capacity as a solicitor, who took the liberty to prepare this memorandum?

A.  Yes.

Q.  And any other reasons apart from those which you just mentioned to us?

A.  Mr Choy was prepared to back up his promise that he would pay the compensation to Mr Huen.  So the memorandum and all the other documents that I prepared were just a guarantee for his payment.  He has also warranted to us that -- warranted to Mr Huen that if HSBC or the CIMA [Cayman Islands Monetary Authority] will lift up the suspension of trading he can redeem the unit trust and then he can pay the money quick.

[p 9 line J to p 10 line J]

Extract (8):

Q.  So on the same occasion, on 8 November, the parties signed both the sale and purchase agreement as well as the assignment now in front of you?

A.  Yes.

Q.  Miss Leung, can you explain to us why it was necessary to sign this document on the 8^th?

A.  Because Mr Choy would put up his property as a guarantee, so when he came to execute the formal agreement he bring along his common seal for the company and sign this document as well.

Q.  What was the intended use of this assignment if Mr Choy did not pay?

A.  If he did not pay he will put his -- transfer the property to Mr Huen.  That’s why the property was put up as a security as a guarantee for his payment.

Q.  Assuming if Mr Choy did not pay, could you, as a conveyancing solicitor, make use of his assignment to procure the transfer?

A.  Well, because he already signed, yes.

[p 15 lines A to H]

Extract (9):

Q.  I may need to ask Mr Huen about it, but let me just ask you whether you were aware or whether you could give me any idea.  What would be the incentive, or what did you and Mr Huen think to be the incentive of Mr Choy to provide any security to Mr Huen on 4 November?  Why should he give security?

A.  He give security so that he could run the office by himself.  How to say it, he wanted to deal with the -- because Mr Huen has been asking him for compensation for the misappropriation of the AM’s money and other things and then as a compensation he offered the settlement sum and then he didn’t want Mr Huen to have any say in the company’s affairs anymore so that the management and other things would be given back to him for him to manage.

Q.  Let me try one more time, because as I say, I will ask Mr Huen about it, but since you went with him I will see whether you were able to help.  On Mr Huen’s case there was a subsisting share sale agreement, correct?

A.  Yes.

Q.  Mr Choy was bound to pay Mr Huen another $30 million, right, 10 million is already paid, you know that, by the funds?

A.  Well, yes, by signing of the share transfer, yes.

Q.  Yes, $10 million had already been paid by I think allocating some unit in funds, right?

A.  Yes.

Q.  So further $30 million to be paid.  It was Mr Huen who was worried about Mr Choy’s ability to pay.

A.  Yes.

Q.  Mr Huen wanted some more -- some security …

A.  Yes, some security, yes.

Q.  Some security from Mr Choy.

A.  Yes.

Q.  Now, what I want to ask you is this: were you aware of any incentive, reason, why Mr Choy should agree to give something more to Mr Huen?  Previously he hasn’t given any security, you accept that?

A.  Yes.

Q.  Why should he agree to give security to Mr Huen on 4 November as a matter of bargaining? You see what I mean?

A.  I understand your question, but then …

Q.  Because to give something more to other people you have to have some leverage, right?  If I don’t give something to you, I don’t give something back to you.  So if Mr Huen went and said, ‘Mr Choy, give me some security’ Mr Choy would say, ‘Why should I give you more?’  As far as you are aware, were you aware of any reason why Mr Choy should agree to accept Mr Huen’s request to provide security?  You understand my question?

A.  Yes, I understand.

Q.  If you are not personally aware of any reason you don’t need to answer, because as I say, it’s more a matter for Mr Huen, but since you are here I will ask you.

A.  No, I -- was there any – well, at that time Mr Choy -- when we asked for the security and then he …

Q.  He just agreed.

A.  He just agreed.

COURT: So your answer to counsel’s question is that you are unable to give any reason why Mr Choy should give more security?

A.  Well, I was not aware of any additional …

COURT: Your answer simply that, when asked, he agreed to the security.

A.  Yes, when they have the negotiation asking for the security and then Mr Choy …

COURT: Counsel’s question was do you know of any reason why Mr Choy should give more security?

A.  I was not aware.

[p 46 line A to p 47 line G]

Extract (10):

Q.  … Now, after you went into the conference room do you remember having been told by Mr Huen that the sale and purchase of the Bel-Air property was to proceed as an ordinary sale and purchase of property and not as security?

A.  No, it was a security.

Q.  And I put it to you that you have been so told that the sale and purchase was to proceed as an ordinary sale and purchase and you proceeded to prepare and finalise the sale and purchase agreement on that basis, do you agree with that, as a normal sale and purchase, you know, someone had to pay a purchase price, rather than as security, do you agree with that?

A.  Yes, that was not a second mortgage, that was a sale and purchase agreement, yes, a formal agreement, yes.

Q.  That was drafted as a sale and purchase agreement, but what I am putting to you is that you were actually told that it was actually to proceed.  The transaction was in fact to proceed as an ordinary buy/sell transaction rather than as merely by way of security.  Do you remember having been so told by Mr Huen?

A.  The document was a sale and purchase agreement.

Q.  Yes.

A.  But that one -- but the parties -- the agreement was that was a security.  That is why Mr Huen -- Mr Choy executed the assignment at the same time as well.

Q.  No, that was not my question.  My question was on the …

A.  It was framed in the form of a normal sale and purchase as you put it.

Q.  Yes, but Mr Choy’s case is that in fact on that day he and Mr Huen agreed, and Mr Huen told you this, that the sale and purchase agreement was in fact to be performed and proceed as a real, a genuine sale and purchase.

A.  No.

Q.  No.  You disagree with that?

A.  No, I disagree.

[p 51 line I to p 52 line B]

Extract (11):

Q.  If the sale and purchase agreement had been intended merely as by way of security, the clause about having to pay deposit and a receipt clause about acknowledging receipt would not have been necessary, do you accept that?

A.  Right, but Mr Choy signed it and acknowledged the receipt, although Mr Huen has not paid any money.

Q.  Yes, I am coming to that, but when you prepared it you did not know that Mr Choy was going to sign it, right?

A.  Mm.

Q.  So at the time you prepared it you thought that you were preparing a document by way of security?

A.  Yes.

Q.  Why would there be a need to extract a deposit and to acknowledge receipt of a deposit if it were intended merely to be by way of security?

A.  That was the form that I had on hand to frame the transaction as a sale and purchase that Mr Choy acknowledged receipt of the money and then he also signed the assignment.  So everything is framed as -- the security is being by doing all the sale and purchase agreement and the assignment done at the same time.

[p 52 line T to p 53 line H]

Extract (12):

Q.  The date of February [date of completion in the S&P Agreement] bore no relationship whatsoever with any of these dates [of the post-dated cheques], and I therefore put to you that the completion date in the agreement means nothing in the context if it were intended to be security.  It could only be because it was intended to be a genuine sale and purchase agreement, do you accept that?

A.  No.

…

Q.  So February meant nothing.  It was just a date plucked somewhere.  It might as well be March, right, you accept that?

A.  Right, and it has always been Mr Choy’s case that he will pay the money as soon as possible so that he can go on with whatever he wants to do with the company.

[p 55 lines F to R]