WIN CITY LTD v. SHUM HO

HCA 1807/2015 & HCA 2877/2016 (heard together)

[2022] HKCFI 420

HCA 1807/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1807 OF 2015

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(By Counterclaim)

HCA 2877/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2877 OF 2016

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JUDGMENT

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I.     Introduction and Background

1.  This is the judgment of the trial of two actions, namely, HCA 1807/2015 commenced on 18 July 2015 (the “First Action”) and HCA 2877/2016 commenced on 3 November 2016 (the “Second Action”), which were ordered to be tried together by Master Lai on 9 November 2016.

2.  The parties to the actions may be briefly described as follows:

(1)     Li Tak Leung (“Mr Li”) (First Action: 3^rd defendant by counterclaim; Second Action: 3^rd defendant) is and was at the relevant time a luxury watch merchant with a shop on the basement level of the Holiday Inn Hotel in Tsimshatsui. Mr Li was also since 2012 a director and purportedly one of the beneficial owners of a licenced money lender known as Wiseful Finance Limited (“Wiseful”).

(2)     Shum Ho (“Mr Shum”) (First Action: defendant by original action and plaintiff by counterclaim) is and was also at the relevant time a luxury watch merchant trading under the name of “Perpetual” at another shop at the basement level of the Holiday Inn Hotel in Tsimshatsui. He was, until at least up to 2016, married to Ms Yeung Lai Shan (“Mrs Shum”). Mr and/or Mrs Shum were previously the registered owners of:

(a)     a unit on Morrison Hill Road in a building known as Lai Shan Building in Wanchai registered in Mr Shum’s name (the “Morrison Hill Property”);

(b)     a unit in Fanling in a development known as Kensington Green also registered in Mr Shum’s name (the “Kensington Property”); and

(c)     a unit in Sham Shui Po in a development known as the Gardenia (the “Gardenia Property”) registered in Mrs Shum’s name

(together, the “Shum Properties”).

(3)     Chu Wai Shan (“Ms Chu”) (Second Action: plaintiff) was from around 2011 Mr Shum’s mistress, and together, they had a son in or around August 2014.

(4)     Win City Limited (“Win City”) (First Action: plaintiff by original action and 4^th defendant by counterclaim; Second Action: 4^th defendant) is a company incorporated in Hong Kong which Mr Shum acquired (through the issue or transfer of one share) as an off-the-shelf company and became its sole director on or around 15 February 2012. Further:

(a)     Win City’s sole asset is a residential flat known as Unit C on the 5th Floor (together with Flat Roof thereof), Lexington Hill, No. 11, Rock Hill Street, Hong Kong (the “Lexington Property”), which it acquired off-plan on 21 February 2012 for a consideration of HK$14,182,200.

(b)     On 15 January 2013, Mr Shum caused Win City to issue one additional share to Ms Chu, whereby Mr Shum and Ms Chu each became a 50% shareholder of Win City. According to Mr Shum and Ms Chu, the share was a gift from Mr Shum to her, whereas on Win City and Mr Li’s case, Ms Chu held the share as nominee for Mr Shum.

(c)     On 18 August 2014, the developer assigned the Lexington Property to Win City, and Ms Chu and her son moved into the property in or around October 2014. Mr Shum also stayed there with Ms Chu from time to time.

(5)     Wong & Wong (“W&W”) (First Action: 2^nd defendant by counterclaim; Second Action: 2^nd defendant) was at the relevant time a firm of solicitors in Hong Kong, the sole proprietor of which was Wong Hoi Hang Thomas (“Mr Wong”). On 14 December 2018, the Law Society intervened in the practice of W&W, for reasons said to be unrelated to the dispute in these actions. Mr Wong apparently ceased practice as a solicitor in 2019.

(6)     Chan Kok Wai (“Mr Chan”) (First Action: 1^st defendant by counterclaim; Second Action: 1^st defendant) was at the relevant time a solicitor’s clerk employed by W&W.

3.  Notwithstanding the complexity of the pleadings by way of claims, counterclaims and counterclaim to counterclaim, the dispute turns primarily upon a series of documents said to have been executed by, Mr Shum, Ms Chu, Mr Li and Win City on 19 December 2014 (the “Disputed Documents”).

4.  Briefly, the effect of the Disputed Documents, which were prepared by Mr Chan, was that inter alia Mr Shum and Ms Chu agreed to sell each of their shares in Win City (and thereby control of the Lexington Property) to Mr Li for a total consideration of HK$19,800,000, HK$10,000,000 of which was confirmed as having been received by Mr Shum and Ms Chu on the date of signing (i.e. 19 December 2014). Completion is said to have taken place on 19 January 2015, whereupon Mr Li became the sole director and shareholder of Win City.

5.  Mr Li and Ms Chu do not dispute that they attended W&W’s office on 19 December 2014 and that the signatures on the face of the Disputed Documents belonged to them, but they firmly deny that they had agreed to, inter alia, the sale of their shareholding in Win City (or, for that matter, the Lexington Property) to Mr Li.

6.  Rather, they say that they were misled into placing their signatures on what were at the time blank or partially blank sheets of paper or forms upon Mr Chan’s fraudulent or negligent misrepresentation that they were merely withdrawing or discharging an “encumbrance” shown as a deed pending registration at the Lands Registry lodged by Mr Li (or upon Mr Li’s instructions) in respect of the Shum Properties and the Lexington Property (referred to by the parties colloquially in Chinese as “解釘”). Hence, the Disputed Documents, they contend, were a forgery or fabrication, being the result of someone adding words and pages to the blank or partially blank sheets of paper they signed after the fact and without their knowledge and consent.

7.  Mr Shum and Ms Chu continued to occupy the Lexington Property and say that they only learned, to their surprise, of the transfer of the Win City shareholding sometime in or around March 2015, when Mr Shum wished to sell the Lexington Property.

8.  On the other hand, Mr Li contends that Mr Shum and Ms Chu knowingly entered into the sale, and after completion of the transfer on 19 January 2015, Mr Shum and Ms Chu continued to occupy the property on the basis of an oral licence granted by Mr Li on Win City’s behalf, which was conditional upon Mr Shum continuing to pay monthly mortgage instalments, rates and management fees on the Lexington Property. Mr Li says that Mr Shum failed or refused to do so in March 2015, and therefore, in or around March or April 2015, Mr Li (on behalf of Win City) terminated the licence and gave them notice to vacate the premises. Mr Li also repaid the mortgage loans and discharged the mortgages on the Lexington Property.

9.  The parties therefore seek the following remedies and reliefs. In the First Action:

(1)     Win City claims against Mr Shum for vacant possession of the Lexington Property, together with damages for trespass or alternatively, mesne profits to be assessed.

(2)     By counterclaim, Mr Shum seeks inter alia declarations against Mr Li and Win City that he remains the 50% registered and beneficial owner of the shareholding of Win City and/or the Property, declarations (in effect) that the transfer of his shareholding in Win City to Mr Li on 19 January 2015 is void, and consequential orders and reliefs.

(3)     By a counterclaim to counterclaim, Mr Li seeks, in the event that the Court sets aside the share transfer of the Win City shareholding to him, orders for restitution or repayment of the sums of HK$10,000,000, HK$2,974,635, HK$144,671 and HK$6,917,592.12 (the latter 3 sums being payments he subsequently made to service or discharge the mortgages on the Lexington Property).

10.  In the Second Action:

(1)     Ms Chu seeks against Mr Li and Win City orders for rescission of the sale of her Win City shareholding to Mr Li, declarations that she remains the 50% registered and beneficial owner of the shareholding of Win City and/or the Property and that the transfer to Mr Li is void, and related and consequential reliefs. Alternatively, she claims the sum of HK$9,900,000 against Mr Li, being half of the HK$19,800,000 consideration for the Win City shareholding, or for unjust enrichment.

(2)     Ms Chu further claims against Mr Chan and W&W damages for breach of solicitor-client retainer, professional negligence and/or negligence and a declaration that W&W is vicariously liable for the actions of Mr Chan.

(3)     By counterclaim, Mr Li seeks, in the event that the Court sets aside the share transfer of the Win City shareholding to him, orders for restitution or repayment of the sums of HK$10,000,000, HK$2,974,635, HK$144,671 and HK$6,917,592.12 and Win City seeks damages for trespass or mesne profits to be assessed.

11.  At the trial, Win City and Mr Li were represented by counsel Mr Alfred Cheng and Ms Chu was represented by counsel Mr Samuel Chan (assigned by the Director of Legal Aid). Mr Chan was represented by counsel Jonathan H.K. Tsang. Mr Shum and Mr Wong (representing W&W) both appeared in person[1].

II.     The Disputed Documents

12.  It may be useful to begin by setting out the Disputed Documents:

(1)     Sale and Purchase Agreement (in English except for names of the parties in both English and Chinese) dated 19 December 2014 and executed by Mr Shum (as the “1^st Vendor”), Ms Chu (as the “2^nd Vendor”) and Mr Li as purchaser, whereby Mr Shum and Ms Chu agreed to sell their two shares of Win City to Mr Li for a consideration of HK$19,800,000, with a completion date of 16 February 2015 (the “Shares SPA”). The agreement contained a receipt clause confirming receipt of a sum of HK$10,000,000 from Mr Li on the date of signing (i.e. 19 December 2014) (the “SPA Receipt Clause”). The signatures of Mr Shum, Ms Chu and Mr Li were witnessed by Mr Chan (who signed) and Mr Chan’s signature was verified by Mr Wong (who also signed).

(2)     Deed of Indemnity (in English except for names of the parties in both English and Chinese) dated 19 December 2014 and executed by Mr Shum, Win City and Mr Li, whereby Mr Shum agreed to indemnify Win City and Mr Li against inter alia any tax liabilities for which provision had not been made in the accounts of Win City (the “Deed of Indemnity”). The signatures of Mr Shum and Mr Li were witnessed by Mr Chan (who signed) and Mr Chan’s signature was verified by Mr Wong (who also signed).

(3)     Board minutes of Win City (in English except for name of Win City in both English and Chinese) dated 19 December 2014 and signed by Mr Shum as chairman resolving, inter alia, that Mr Li be appointed director and company secretary, that the company accept the resignation of Mr Shum, that Mr Li be made the signatory of the company’s bank accounts, and that subject to the presentation of duly completed bought and sold notes and instruments of transfer, the company approve the transfer of the two shares of the company to Mr Li (the “Board Minutes”).

(4)     Notice of Change of Company Secretary and Director (Companies Registry Form ND2A) (form in English and Chinese) dated 19 December 2014 signed by Mr Shum (as director of Win City) appointing Mr Li as director of Win City and signed by Mr Li accepting the appointment (the “Form ND2A”).

(5)     Notice of Resignation of Company Secretary and Director (Companies Registry Form ND4) (form in English and Chinese) dated 19 December 2014 and signed by Mr Shum resigning as director of Win City (the “Form ND4”).

(6)     Instrument of Transfer (in English except for names of parties in both English and Chinese) signed by Mr Shum (as transferer) and Mr Li (as transferee) transferring Mr Shum’s one share of Win City in consideration of “value received”. On Mr Li and Mr Chan’s case, the document was undated when signed by Mr Shum on 19 December 2014 and only dated and signed by Mr Li upon completion on 19 January 2015 and stamped the next day (“Mr Shum’s Instrument of Transfer”). The signatures of Mr Shum and Mr Li were witnessed by Mr Chan (who signed).

(7)     Instrument of Transfer (in English except for names of parties in both English and Chinese) signed by Ms Chu (as transferor) and Mr Li (as transferee) transferring Ms Chu’s one share of Win City in consideration of “value received” (“Ms Chu’s Instrument of Transfer”). On Mr Li and Mr Chan’s case, the document was undated when signed by Ms Chu on 19 December 2014 and only dated and signed by Mr Li upon completion on 19 January 2015 and stamped the next day. The signatures of Ms Chu and Mr Li were witnessed by Mr Chan (who signed).

(8)     Bought and Sold Notes (in English except for names of parties in both English and Chinese) signed by Mr Shum (as seller and transferor) to Mr Li (as purchaser and transferee). “Consideration Received” was stated to be HK$9,900,000 (the amount in manuscript). Mr Li and Mr Chan accept that the document was undated when signed by Mr Shum on 19 December 2014 and only dated and signed by Mr Li upon completion on 19 January 2015 and stamped the next day (“Mr Shum’s Bought and Sold Notes”).

(9)     Bought and Sold Notes (in English except for names of parties in both English and Chinese) signed by Ms Chu (as seller and transferor) to Mr Li (as purchaser and transferee). “Consideration Received” was stated to be HK$9,900,000 (the amount in manuscript). Again, Mr Li and Mr Chan accept that the document was undated when signed by Ms Chu on 19 December 2014 and only dated and signed by Mr Li upon completion on 19 January 2015 and stamped the next day (“Ms Chu’s Bought and Sold Notes”).

(10)     HK$33 Million Loan Agreement dated 19 December 2014 (in English except for names of parties in both English and Chinese) between Mr Shum and Wiseful whereby Wiseful agreed to make a loan of HK$33,000,000 to Mr Shum and Mr Shum agreed to repay the sum within 31 months, i.e. on or before 19 July 2019, together with interest at 30% per annum on the Principal Amount “repayable monthly on the 19^th day of July 2015” (the “HK$33M Loan Agreement”). The Loan Agreement appears to have been signed by Mr Shum only, and his signature witnessed by Mr Chan (who signed) and Mr Chan’s signature was verified by Mr Wong (who also signed).

(11)     Memorandum under Section 18 of the Money Lenders Ordinance (in English) dated 19 December 2014 and signed by Mr Shum recording the key terms of the HK$33M Loan Agreement (the “Section 18 Memorandum”). The signature of Mr Shum was witnessed by Mr Chan (who signed) and Mr Chan’s signature was verified by Mr Wong (who also signed).

13.  As mentioned above, neither Mr Shum nor Ms Chu denies the authenticity of their signatures above which appear on the face of the Disputed Documents.

III.     Mr Shum and Ms Chu’s Cases in respect of the Disputed Documents

14.  I summarise Mr Shum and Ms Chu’s respective cases on the circumstances surrounding the Disputed Documents below, which (as one would expect) are broadly consistent. Insofar as Mr Shum is concerned, I have borne in mind that he has not been legally represented since September 2016, and that his Amended Defence and Counterclaim (in Chinese) dated 21 December 2016 and his witness statement (in Chinese) dated 14 March 2018 were filed by him in person.

15.  I should mention at the outset that much time was spent in the evidence on the relationship and prior financial and business dealings between Mr Shum and Mr Li and whether these led to significant monies being owed by Mr Shum to Mr Li and Wiseful. These matters were hotly disputed. I have considered the evidence of both sides as part of the background leading to the creation of the Disputed Documents. For reasons which will become clear, I do not think it is necessary for me to set these out in detail here save where the context requires below.

Mr Shum’s Case

16.  Mr Shum acquired Win City as a shelf-company for the purpose of purchasing the Lexington Property, which he did in February 2012 for the price of HK$14,182,000 and paid a 20% deposit of HK$2,836,400, stamp duty and legal fees. In February 2013, he gifted one share, being 50% of the shareholding, in Win City to Ms Chu. The purchase of Lexington Property was completed in August 2014, and he paid a further 10% instalment of HK$1,454,600. He financed the balance of the purchase price through a first mortgage with OCBC Wing Hang Bank for a loan of HK$7,000,000 (the “OCBC Mortgage”) and a second mortgage with Easy Dollars Limited for a loan of HK$2,800,000 (the “Easy Dollars Mortgage”) (guaranteed by him and Ms Chu personally).

17.  In or around December 2014, Mr Shum wished to realise some properties, including the Lexington Property. He accepted that he was having cashflow difficulties and had already sold the Morrison Hill Property on 18 September 2014. Mr and Mrs Shum were also in the process of selling the Kensington Property and Gardenia Property by way of sale and purchase agreements dated 24 November 2014, which later completed on 26 February 2015. The properties were sold to raise funds and, at least in part, to settle various debts owed by Mr Shum.

18.  Mr Shum said he learned from solicitors handling the sale of the Kensington Property and the Gardenia Property (which were pending completion) that an “encumbrance” had been registered against those properties and the Lexington Property with the Lands Registry (referred to in Chinese colloquially as “釘契” or “落釘”).

19.  I pause to note here that this so-called “encumbrance” was a “deed pending registration” of a Chinese memorandum dated 8 July 2014 purportedly signed by Mr Shum (which he disputes), to the effect that, in respect of a loan in the original sum of HK$33,000,000 together with accumulated interest of HK$9,125,000 owed to Mr Li, Mr Shum agreed to charge the Shum Properties and the Lexington Property as security for the loan (the “July 2014 Memorandum”). It appears that the July 2014 Memorandum was purportedly registered with the Lands Registry around 8 December 2014 (the “2014 Purported Encumbrance”).

20.  Mr Shum said he then contacted Mr Li and asked him to withdraw or discharge the 2014 Purported Encumbrance or “解釘”. Mr Li agreed on the condition that Mr Shum repay him HK$2,100,000 owed for an unpaid consignment of luxury watches. Around 10 days later, Mr Shum persuaded Mr Li to accept a sum of HK$2,000,000, which Mr Shum paid by giving Mr Li HK$1,650,000 in cash and around HK$350,000 in luxury watches belonging to Perpetual.

21.  One or two days later, he received a call from Mr Chan requesting him and Ms Chu to attend W&W’s office in Mongkok to sign some documents. Mr Chan explained that as Mr Shum had already paid HK$2,000,000 to Mr Li, he needed to attend W&W’s office to sign some documents to “解釘”. Mr Chan also requested Mr Shum to ask Ms Chu to come together as she was also one of the shareholders of Win City. Mr Chan also told Mr Shum that the legal fees and expenses for 解釘” would be HK$95,000.

22.  On 19 December 2014, around 5 pm, he and Ms Chu attended W&W’s office together with Win City’s seal and chop to sign what they believed to be documents for the purpose of “解釘”. Mr Shum recognised Mr Chan from a previous criminal case that he and Mr Li had previously been involved in in 2011 and remembered him to be a solicitor’s clerk who acted for Mr Li.

23.  Mr Shum said that Mr Chan then produced some blank and partially blank sheets of paper and forms, said again that these were for the purpose of “解釘”, pointed out spaces on various pages and asked Mr Shum and Ms Chu to sign their names. Mr Shum and Ms Chu followed Mr Chan’s instructions and did so. Mr Chan asked Mr Shum to leave behind Win City’s chop and seal for convenience in handling the “解釘” procedures, to which he agreed as he was keen to have the matter resolved as soon as possible.

24.  According to Mr Shum, the entire process at W&W’s office took no more than about 30 minutes. Mr Shum also paid sum of HK$95,000 as the legal fees and expenses for “解釘” a few days later.

25.  In early 2015, he again intended to sell the Lexington Property, and at the end of February 2015, he had a Taiwanese friend who was interested to purchase the property for HK$17,800,000. He therefore inquired with OCBC and Easy Dollars on early settlement of the mortgage loans. It was then that he learned, to his shock and surprise, from a Mr Tong at Easy Dollars that the Win City shareholding had already been transferred to Mr Li.

26.  Mr Shum said that he then went to W&W’s office in early March 2015 and asked Mr Chan for copies of the documents he and Ms Chu signed on 19 December 2014. After looking at the copies, he asked Mr Chan to explain why the blank sheets and forms he had signed for the purpose of “解釘” turned into an agreement for the sale and purchase of shares and that he was stated to have received HK$10,000,000. Mr Chan then insisted that the documents that he and Ms Chu had signed were complete documents at the time and that he had explained the terms to him. However, according to Mr Shum, Mr Chan in a “slip of tongue” (“口快快”) admitted that he had only filled in certain words only afterwards. Mr Chan also said that the “解釘” Mr Shum referred to had already been completed but that was another matter. After further dispute, Mr Chan telephoned Mr Li and asked Mr Shum to resolve the matter directly with Mr Li. After a dispute with Mr Li on the telephone, they agreed to meet together to resolve the matter together with the said Mr Tong, who was a common friend. Mr Shum videorecorded part of this meeting with Mr Chan with his mobile telephone at W&W’s office. I will come back to the video later.

27.  On the same day, Mr Shum met with Mr Tong and Mr Li at Easy Dollar’s office in Tsimshatsui. After strenuous argument with Mr Li, Mr Shum said that if Mr Li did not return the Win City shares to him, he would report the matter to the police. Mr Li then agreed to return the shares to him and said that he would instruct Mr Chan the next day to prepare the documents and ask Mr Shum to sign. The next day, Mr Chan called Mr Shum telling him that Mr Li had instructed him to prepare documents for the return of the shares, that he needed some time to do so, and once the documents were ready, he would contact Mr Shum.

28.  However, Mr Shum said that after discussing the matter with his lawyer friends, he decided against going to sign any further documents at W&W, but rather, on 19 March 2015, filed a complaint with the police. Although Mr Chan called Mr Shum numerous times asking him to go sign the documents, he declined saying he was not in Hong Kong.

29.  Whilst the police were investigating, he received a letter dated 30 April 2015 from W&W acting for Mr Li claiming that there was an oral tenancy between Win City and Mr him for the Lexington Property at a monthly rent of HK$82,351 and demanded outstanding rent totalling HK$329,404 (the “Letter Before Action”). The sum of HK$82,351 was the sum of the two mortgage monthly instalments with OCBC and Easy Dollar. As he believed that there was never any oral tenancy and that the allegations in the letter were absurd, he did not reply.

30.  Mr Shum said he continued to pay mortgage instalments to OCBC and Easy Dollars but stopped around April 2015 pending the police’s investigation and determination by the Court.

Ms Chu’s Case

31.  Ms Chu was born in 1988. Other than working as a secretary and personal assistant at a jewellery shop about a year shortly after meeting Mr Shum in 2011, she said she did not work and was financially dependent on Mr Shum. She moved out from living with her family in 2012 and Mr Shum paid her rent and would stay with her from time to time.

32.  In the beginning of 2012, she knew that Mr Shum purchased the Lexington Property as an off-plan development. He told her that he was purchasing it for her and would include her name in it so as to give her some security. She said it was intended as a gift and Mr Shum would take care of all the mortgage payments. Completion took place around August 2014, and she and her son moved into the Lexington Property in October 2014. Mr Shum stayed there with her from time to time. She was responsible for the utilities charges whilst Mr Shum paid the rates and management fees, although she would pay them from time to time if Mr Shum did not do so.

33.  She knew that Mr Shum and Mr Li had been friends for a number of years, and she had seen Mr Li quite a few times. However, although she knew that they had business dealings with each other, she did not know the details.

34.  In or around December 2014, Mr Shum told her that he owed Mr Li some money and Mr Li had registered encumbrances or “落釘” over several of Mr Shum’s properties, including the Lexington Property, so that he could not sell them. She did not ask him how much he owed Mr Li.

35.  One day in December 2014, Mr Shum told her that he had repaid a sum of HK$2,000,000 to Mr Li and he agreed to withdraw or discharge the encumbrance, or “解釘”. Mr Shum asked her to go to the solicitor’s office with him to sign some documents for that purpose. She agreed without raising any queries.

36.  In the afternoon of 19 December 2014, Mr Shum took her to W&W’s office in Mongkok together with Mr Shum and were received by a gentleman which she later learned was Mr Chan. She said that Mr Chan did not introduce himself or give her a business card and simply asked her and Mr Shum to sign on a few sheets of paper, in respect of which he did not explain to her their purpose, contents or nature. He rushed her and Mr Shum to sign because he said Christmas was approaching and there would be no one in the office to handle the matter. The quicker the documents were signed, the sooner he said he could submit them for “解釘”. She said her understanding was that Mr Chan would submit the documents to the Lands Registry.

37.  She remembered that she signed her name about 4 times on mostly blank sheets of paper. She remembered that among the documents she signed, there were sheets of paper with no words or numbers written or printed on them, only brackets. Some had printed the Chinese and English names of Win City. She followed Mr Chan’s instructions to sign. She also remembered that there were no staples fastening the papers.

38.  She stayed with Mr Shum at W&W’s office for about 15 minutes and then left. According to her, Mr Chan never said that he represented her or Mr Shum. She believed that he represented Mr Li and was responsible for arranging the procedure for “解釘” for Mr Shum and her. Mr Chan also did not ask them to obtain independent legal advice. Mr Chan also did not provide them with any copies of the documents they signed.

39.  She was later shown by her solicitors in these proceedings a copy of the Shares SPA. Although she confirmed the signatures on the documents were made by her, she said she had never been shown the document before by Mr Chan at W&W’s office. As mentioned earlier, she said the documents Mr Chan asked her to sign did not contain any printed words or numbers. Most importantly, she never received the HK$10,000,000 deposit or any of the balance of HK$9,800,000.

40.  As for Ms Chu’s Bought and Sold Note, she again confirmed the signature which appears on it was made by her. However, when she signed, the form was mostly blank, with only the English and Chinese names of Win City and her name filled in. Mr Li’s name, address, occupation and dollar amounts were not filled in. As to the number of shares (i.e., 1) and the date (i.e. 19, she did not notice whether those were present. She also had no recollection of the lower half of the document entitled “Bought Note”.

41.  Finally, as for Ms Chu’s Instrument of Transfer, she again confirmed that the signature which appears on it was made by her. But her recollection of the document was very hazy and just remembered the brackets next to her signature and the English and Chinese names of Win City being there. Mr Li’s name was not present.

IV.     Mr Li and Mr Chan’s Cases in respect of the Alleged December 2019 Documents

Mr Li’s Case

42.  Since around mid-2013, Mr Shum experienced serious financial difficulties and had borrowed various sums from Mr Li and Wiseful, of which Mr Li was “one of the beneficial owners”. By April 2014, Mr Shum owed Wiseful a principal sum of HK$33,000,000, with monthly interest dues of HK$912,500.

43.  As can be seen from a letter dated 11 April 2014 issued by Wiseful and countersigned by Mr Shum (which Mr Shum disputes), Wiseful agreed to continue granting facilities of HK$33,000,00 to Mr Shum, provided that he executed second mortgages in respect of the Morrison Hill Property and the Kensington Property. For reasons which are unclear, no second mortgages were eventually executed or registered by Wiseful in respect of these two properties.

44.  In or around July 2014, Mr Shum told Mr Li that he needed more time to repay his indebtedness to Wiseful. Mr Li agreed to extend the repayment date for another 10 months, and his assistant, Mr Jat Chun Chung (翟振宗) (“Mr Jat”) prepared a breakdown dated 8 July 2014 of the various loans from Wiseful which totalled HK$33,000,000 and an interest payment schedule up to 28 February 2015 (the “July 2014 Schedule”). The July 2014 Schedule was confirmed by Mr Shum’s signature (which he disputes).

45.  The July 2014 Schedule was dated the same date as the July 2014 Memorandum, which he instructed Mr Chan to submit to the Lands Registry for registration. Although Mr Chan advised Mr Li that the document was not a registrable instrument, Mr Chan also said that the fact that the Lands Registry would show the document as a “deed pending registration” against the Shum Properties and the Lexington Property would likely cause any potential buyers of the properties to make inquiries with W&W and thus alert Mr Li of any attempted sale.

46.  Pausing here, I would observe that such a practice is a serious abuse of the Lands Registration Ordinance (Cap 128) and should be strongly deprecated. Legal professionals who knowingly engage in this abuse should be referred to the Law Society for disciplinary action.

47.  Mr Li said he also made a number of loans and advances personally to Mr Shum which, by December 2014, totalled HK$9,700,000. Sometime in early December 2014, upon Mr Li’s insistence, Mr Shum repaid Mr Li HK$2,000,000, comprising HK$1,650,000 in cash and HK$350,000 in luxury watches.

48.  Also in December 2014, Mr Li said that Mr Shum told him he was having difficulty paying the monthly mortgage instalments due under the OCBC Mortgage and the Easy Dollars Mortgage and wished to sell the Lexington Property. After some discussion, he said that he reached an oral agreement with Mr Shum as follows:

(1)     Mr Shum would transfer his shareholding in Win City to Mr Li. Although at the time Mr Li did not know that one share had been allotted to Ms Chu, the understanding was that 100% of the shareholding of Win City would be transferred to him.

(2)     The consideration for the shares was agreed at HK$l9,800,000, calculated on the basis that the Lexington Property was valued at between HK$18,000,000 and HK$20,000,000. Mr Li also believed he could obtain mortgage financing for about HK$10,000,000, which he could then use to discharge OCBC Mortgage and the Easy Dollar Mortgage (which totalled approximately HK$9,800,000).

(3)     Mr Li would repay or procure the release of part of the loan owed by Mr Shum to Wiseful in the amount of HK$10,000,000 as deposit and part payment for the shares.

(4)     Mr Shum agreed to enter into another loan agreement of HK$33,000,000 with Wiseful to confirm again his indebtedness to Wiseful.

49.  Following the discussion, Mr Li approached Mr Chan and instructed him to prepare the documents for implementing the agreement. Mr Chan agreed that W&W would handle this matter.

50.  A few days prior to 19 December 2014, Mr Chan told Mr Li that Mr Shum and Ms Chu would attend W&W’s office to execute the documents for the sale of the Win City shares. Mr Chan also asked Mr Li to attend the office of W&W on the same date to sign the documents.

51.  Mr Li said he then attended W&W’s office on 19 December 2014 as directed by Mr Chan and signed the Shares SPA and the Deed of Indemnity after Mr Chan briefly explained the terms to him. When Mr Li signed the documents, he said he saw that Mr Shum and Ms Chu had already signed the two documents as witnessed by Mr Chan. Mr Chan also showed and explained to him the remainder of the Disputed Documents signed by Mr Shum and Ms Chu. Mr Chan told Mr Li that he had explained the documents to Mr Shum and Ms Chu before they signed them. Mr Li saw that the completion date for the transfer was shown on the Shares SPA to be 16 February 2015.

52.  Mr Chan also told Mr Li that prior to Mr Shum and Ms Chu attending W&W’s office that day, Mr Chan had a telephone conversation with Mr Shum confirming with him the oral agreement. Mr Chan then told Mr Shum that he would prepare the necessary documentation and also asked Mr Shum to bring with him Win City’s company seal and company chop, together with other documents relating to the acquisition of the Lexington Property and that Mr Shum and Ms Chu did so. Mr Chan then handed over the items to Mr Li.

53.  After signing the documents, Mr Li procured Wiseful to issue a “Partial Repayment Office Receipt” dated 19 December 2014 to Perpetual for acknowledging that a partial repayment of HK$10,000,000 was made by Mr Li on behalf of Mr Shum or Perpetual to Wiseful on 19 December 2014 (the “Wiseful Receipt”). Although he did not pay the sum to Wiseful immediately, he did so in tranches on various dates between January and August 2015.

54.  Sometime in January 2015, Mr Shum approached Mr Li and told him that he was having difficulties repaying the two mortgages and hoped that the transfer could be completed as soon as possible. Mr Li therefore agreed with Mr Shum for the completion date for the sale and purchase of the shares be advanced from 16 February 2015 as stipulated in the Shares SPA to 19 January 2015.

55.  Mr Shum also asked him whether Mr Shum, Ms Chu and their son could continue to live in the Lexington Property. As it was Chinese New Year, Mr Li said he appreciated that it was difficult to find another suitable place to live. After some consideration, he agreed, but on the condition that Mr Shum continue to service the OCBC Mortgage (approximately, HK$26,000 per month), property management fees, rates and utilities. Further, he could ask Mr Shum and Ms Chu to move out at any time. Mr Shum agreed.

56.  Mr Li’s case is that on 19 January 2015, he attended W&W’s office and signed the Bought and Sold Notes and Instruments of Transfer, which were then dated 19 January 2015. Mr Li then spoke with Mr Shum on the telephone after the transfer on the same day confirming the licence. The Bought and Sold Notes and Instruments of Transfer were stamped on 20 January 2015.

57.  However, Mr Li said that Mr Shum only paid the monthly instalments for the OCBC Mortgage and management fees up to March 2015. When Mr Li discovered this, he asked his lawyers in or around April 2015 to terminate the licence and requested that Mr Shum and Ms Chu vacate the property. However, Mr Shum and Ms Chu refused to do so.

58.  Mr Li also denied in cross-examination the meeting said to have taken place between him, Mr Shum and Mr Tong at Easy Dollars office in March 2015.

59.  On 31 March 2015, Win City repaid Easy Dollars in full and discharged the Easy Dollars Mortgage, amounting to HK$2,9745,635 including interest. Further on 20 May 2015, he used his company, Hei Fung Limited, to refinance the mortgage at OCBC, and on 16 September 2015, the OCBC Mortgage was discharged and replaced with a new mortgage.

Mr Chan’s Case

60.  Mr Chan worked as a legal clerk for W&W between April 2013 and May 2015. He had become acquainted with Mr Li when Mr Li engaged him to help defend a criminal case in the District Court in 2011. Mr Li met Mr Shum at that time as well, as both Mr Li and Mr Shum had been charged with assault in that case, but both were later acquitted.

61.  In the middle of 2013, Mr Chan said Mr Li telephoned him and told him that Mr Shum borrowed monies from him and his finance company and had agreed to execute a second mortgage over his properties. Mr Li then provided him with loan documents and addresses of certain properties to be mortgaged. He told Mr Li that the Lands Registry would refuse registration of the loan documents as they did not affect the interest in the properties. However, the Lands Registry would show the documents as “a deed pending registration” against the properties, which would be noticed by potential buyers. Generally, buyers would not purchase such properties or at least make further inquiries. Mr Li then instructed him to register the loan document on the properties (the “2013 Purported Encumbrance”).

62.  I should mention here that the 2013 Purported Encumbrance was subsequently withdrawn or discharged for reasons which are not entirely clear. However, as mentioned above, the July 2014 Memorandum was then registered with the Lands Registry apparently on 8 December 2014 (i.e. the 2014 Purported Encumbrance), shortly before the execution of the Disputed Documents. The 2014 Purported Encumbrance, too, was subsequently withdrawn or discharged on Mr Li’s instructions, according to Mr Chan, sometime around January or February 2015. By that time, all of the Shum Properties had already been sold, and on Mr Li and Mr Chan’s case, the Win City shareholding had already been sold to Mr Li on 19 December 2014 and the sale completed on 19 January 2015. Mr Chan insisted that the withdrawal of the 2014 Purported Encumbrance was a separate matter from the share sale and had nothing to do with the Disputed Documents.

63.  In or around mid-December 2014, Mr Li telephoned him and told him that:

(1)     As at December 2014, Mr Shum owed Mr Li personally HK$9,700,000 and owed Wiseful a principal loan amount of HK$33,000,000.

(2)     Mr Shum could not repay the loans due to liquidity problems, and so he agreed to transfer his shareholding in Win City to Mr Li at a consideration of HK$19,800,000.

(3)     Of the HK$19,800,000, Mr Li would settle the sum of HK$10,000,000 directly with Mr Shum prior to the agreement. As for the balance of HK$9,800,000, that would be paid upon completion;

(4)     Mr Shum would be responsible for the costs of the transfer.

(5)     Mr Shum also agreed to sign a new loan agreement confirming that he owed HK$33,000,000 to Wiseful.

64.  Mr Li then instructed Mr Chan to prepare the necessary documentation for the transfer and to liaise with Mr Shum. From a search of the Companies Registry, Mr Chan learned that a 50% shareholder of the company was Ms Chu, whom he later found out to be Mr Shum’s girlfriend.

65.  Mr Chan then telephoned Mr Shum and told him what he had been told by Mr Li and confirmed with Mr Shum about the transfer of Win City. Mr Chan further obtained Mr Shum’s confirmation that he and Ms Chu agreed to retain him to represent them for the transfer transaction.

66.  Mr Chan then proceeded to draft the Disputed Documents. On 18 December 2014, he telephoned Mr Shum and told him that all the documents have been prepared and invited him and Ms Chu to attend W&W’s office to sign the documents. He also asked Mr Shum to bring Win City’s company seal and company chop, together with other documents relating to Win City and its purchase of the Lexington Property.

67.  On or about 19 December 2014, Mr Shum and Ms Chu attended W&W’s office and handed over to Mr Chan Win City’s company seal, company chop and documents concerning, inter alia, the purchase of the Lexington Property.

68.  Mr Chan said he then showed and explained to them the Disputed Documents, including the fact that they would be signing undated Bought and Sold Notes and the undated Instruments of Transfer in escrow. Mr Chan also reminded Mr Shum and Ms Chu of their right to engage independent legal advisers in relation to the sale and the Disputed Documents.

69.  Mr Shum and Ms Chu indicated that they understood the nature of the documents and their effect and did not raise any questions or queries. They further agreed to the terms and their intention to proceed with the execution of the documents and said there was no need to seek independent legal advice.

70.  Mr Chan said he then invited Mr Shum and Ms Chu to sign on all the Disputed Documents and witnessed and attested their execution. The process of explaining the nature and effect of the documents and their execution by Mr Shum and Ms Chu took about an hour.

71.  Mr Li then attended W&W’s office on the same day after Mr Shum and Ms Chu left. Mr Chan explained the nature and effect of the Disputed Documents that had already been executed by Mr Shum and Ms Chu. Mr Li said he understood and executed the relevant documents, save and except for the undated Bought and Sold Notes and undated Instruments of Transfer, which were to be executed on a later date. Again, Mr Chan witnessed and attested to the signatures on the documents. He also handed to Win City’s company seal and company chop and the documents relating to Win City’s acquisition of the Lexington Property to Mr Li.

72.  Subsequently, Mr Chan provided to Mr Shum and Mr Li with photocopies of the executed Disputed Documents. Mr Li’s assistant later informed Mr Chan that Mr Li had procured Wiseful to issue the Wiseful Receipt to Perpetual for acknowledging receipt of HK$10,000,000 as the deposit.

73.  Further, on 22 December 2014, Mr Shum paid W&W’s legal fees in the amount of HK$95,000 (inclusive of disbursement and stamp duty), and Mr Chan issued the receipt (the “W&W Receipt”). The W&W Receipt stated that the client was “SHUM HO (BORROWER)”, the matter was the second mortgage of the Morrison Hill Property, and the sum was received from Mr Shum and Wiseful.

74.  The W&W Receipt was obviously incorrect. Mr Chan explained that when Mr Li instructed him to handle the transfer of the Win City shareholding, he did not open a new case file and used the existing one concerning the registration of the 2013 Purported Encumbrance. When preparing the W&W Receipt, the accounts department based it on the earlier matter, and he did not notice the error.

75.  Mr Chan strongly denied that he had asked Mr Shum and Ms Chu to come to W&W’s office and execute documents for the purpose of discharging any encumbrance, nor had he asked Mr Shum and Ms Chu to sign on blank or partially documents and forms (other than the undated Bought and Sold Notes and Instruments of Transfer) as alleged by Mr Shum and Ms Chu.

76.  In or around mid-January 2015, Mr Li told him that he had orally agreed with Mr Shum and Ms Chu that the completion date of the Shares SPA, which was stipulated to be 16 February 2015, would be moved forward to 19 January 2015. He also told Mr Chan that he and Mr Shum agreed that he would be responsible for servicing and eventually discharging the OCBC and Easy Dollars Mortgages, the total outstanding amount of which was around HK$9,800,000. Hence, he said, there would be no need to pay Mr Shum and Ms Chu the balance of HK$9,800,000.

77.  Mr Chan said that Mr Li also told him that Mr Li had agreed on behalf of Win City to grant a licence to Mr Shum and Ms Chu to stay at the Lexington Property for a short period of time, subject to the condition that Mr Shum should pay the monthly instalment of the OCBC Mortgage, rates, utilities and management fees and that the licence would be terminable upon demand by Win City.

78.  On 19 January 2015, Mr Li attended W&W’s office, dated and executed the Bought and Sold Notes and Instruments of Transfer, which were then stamped the next day.

79.  In or around April 2015, Mr Li informed Mr Chan that Mr Shum failed to make the monthly repayment for the OCBC Mortgage, and on behalf of Win City, he gave notice to Mr Shum terminating the licence agreement and demanded that Mr Shum vacate the property.

IV.     Preliminary Observations

80.  I would begin by observing that the events in dispute took place some 6 years prior to the trial, and that precise recollection of events, including what was said and when, is likely to have been dulled by the passage of time. I therefore gave necessary allowance for minor discrepancies in the pleadings, witness statements and what was said in oral evidence in Court.

81.  However, the versions of events contended by Mr Li and Mr Chan, on the one hand, and Mr Shum and Ms Chu, on the other, as to the circumstances in which the Disputed Documents came to be executed are obviously and irreconcilably different. The Court will therefore have to make a finding and accept one of those versions, with the result that the other will necessarily be rejected.  There is little middle ground.

82.  In assessing the credibility of witnesses, I remind myself of the principles which were helpfully summarised by Marlene Ng J in M.A. (HK) Ltd and Anor v Yeung Yuk Sing and Others (unreported) [2017] HKCU 2762 at paragraph 31:

“In assessing witnesses’ credibility, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the chronology of events, the available documentary evidence and the inferences based on inherent probabilities and/or undisputed facts. Further, because an individual is not credible in relation to one issue that does not mean his / her evidence will be rejected in relation to other issues in the case. It is all a matter of assessment and degree. For allegations of misappropriation/fraud, they must be plainly established, and the cogency of the basis relied upon must be assessed by examining the particular factual matrix and by applying the standard of balance of probabilities taking into account that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before the court would conclude that the allegation is established.”

83.  In respect of last sentence in the passage, it is also useful to refer to the Court of Final Appeal’s observations in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at paragraphs 185 and 187:

“185. A related principle should be applied in tandem. Where, as in the present case, the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.

…

187. In HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

“...... that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts”. (at §72)

Reflecting the Re H principle he added:

“In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li’s conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so.”

84.  It is clear from my summary above that the allegations made by Mr Shum and Ms Chu are on any view extraordinary. Even if the Court were to accept the naivety of both Mr Shum and Ms Chu in their willingness to sign blank or partially blank sheets of paper and forms in the formal context of a solicitors’ office, what is being alleged is a fraudulent conspiracy between Mr Chan, a solicitor’s clerk, and Mr Li to swindle Mr Shum and Ms Chu out of their shareholding of Win City (and, in effect, the Lexington Property) in a most brazen manner. If true, serious criminal liability would almost inevitably follow against at least Mr Chan and Mr Li. Hence, to reach such a conclusion, cogent evidence is required to overcome the unlikelihood of such conduct, and any inferences must be compelling and properly grounded in primary facts found.

85.  In her statement of claim in HCA 2877/2016, Ms Chu pleads as an alternative to fraud, negligent misrepresentation as a basis to rescind the Shares SPA, her Bought and Sold Note and her Instruments of Transfer. As mentioned above, she also claims against Mr Chan and W&W for damages for breach of the solicitor-client retainer and/or negligence.

86.  Whilst it is undoubtedly permissible under RHC Order 18 r.12A to raise in pleadings an allegation of fact which is inconsistent with another allegation of fact if (a) the party has reasonable grounds for doing so; and (b) the allegations are made in the alternative, it is difficult to see how Ms Chu can, on the facts of this case, realistically succeed in a case of negligence if her primary case of fraud fails.

87.  The reason is that if the Court accepts her factual case that she and Mr Shum were told by Mr Chan on more than one occasion that the documents she was asked to sign were for the purpose of “解釘”, then Mr Chan, being a solicitor’s clerk who would invariably know the difference between an agreement for sale and purchase of shares and the withdrawal or discharge of a deed pending registration, must have been dishonest. There can be little room for misrepresentation or misunderstanding due to negligence or lack of professional care and skill.

88.  Similarly, and a fortiori, if the Court were to accept her factual case that she and Mr Shum were asked by Mr Chan to sign blank or partially blank sheets of paper and forms, with contents added after the fact to constitute the Disputed Documents (other than dating the Instruments of Transfer and Bought and Sold Notes on completion) without their knowledge and consent, that would again inevitably involve a finding of dishonesty on the part of Mr Chan (and Mr Li) and could not have been the result of any negligence or lack of care and skill.

89.  A case of negligence or lack of care and skill could only realistically arise where she and Mr Shum were presented with the actual Disputed Documents, as they now appear, and Mr Chan failed to give any or any sufficient advice, or gave incorrect advice, as to the nature and effect of the documents or the transactions represented by the documents.

90.  However, that is simply not her or Mr Shum’s case. It was unequivocally her evidence (and that of Mr Shum) that they were told by Mr Chan that the documents were for “解釘” and that she and Mr Shum were given blank or partially blank sheets of paper and forms to sign for that purpose. Other pages and words were then, on their case, added to the blank sheets of paper signed by them without their knowledge or consent so as to create a legal effect, i.e., the sale of the Win City shareholding, that was never intended by them.

91.  Second, the factual cases of Mr Shum and Ms Chu as to what had happened on 19 December 2014 at W&W’s office are likely to stand and fall together. Both Mr Shum and Ms Chu attended the office together and were in the presence of each other and Mr Chan when the documents were executed. Any representations made by Mr Chan as to the nature and purpose of the Disputed Documents were made to the both of them at the same time.

92.  I would also observe that if Ms Chu were the beneficial owner of her one share in Win City (which I am prepared to accept to be the case), the transaction would arguably have been to her disadvantage, as the HK$10,000,000 (which was roughly the equity of the Lexington Property after deducting the amounts secured by the OCBC Mortgage and the Easy Mortgage) was used entirely to set-off against Mr Shum’s debts to Wiseful. That said, it is important to note that no case of undue influence or misrepresentation by Mr Shum has been advanced by Ms Chu. In any event, the situation is not entirely straightforward, given that Ms Chu’s financial position was closely tied to that of Mr Shum, and she may well have good reasons to assist Mr Shum.

93.  I should also mention here that Mr Samuel Chan sought to raise at the trial on behalf of Ms Chu an alternative case theory that the Shares SPA was in fact a document executed in escrow as a form of security for Mr Shum’s indebtedness, presumably to replace the Purported 2014 Encumbrance. That would explain the Shares SPA as being for the purpose of “解釘”. Whilst there might be some superficial attraction to such a theory, it was far too late for this to be raised as it involved a significant departure from her pleaded case, which would seriously prejudice to her opponents. This is especially so when her primary case involves serious allegations of fraud and forgery. I therefore decline to consider any such theory.

V.     Discussion and Findings as to the Disputed Documents

94.  Having heard the evidence and having considered the inherent probabilities of the parties’ respective cases, despite certain unsatisfactory aspects in the evidence of Mr Chan and Mr Li (see below), I am unable to accept Mr Shum and Ms Chu’s case as advanced that: (1) Mr Chan deceived or otherwise misled them that the purpose of the Disputed Documents was for “解釘”; and (2) that they had been presented with and asked to sign (and did sign) blank or partially blank sheets of paper (other than the undated Bought and Sold Notes and Instruments of Transfer), with the contents making up the Disputed Documents as they now appear only having been added after the fact. I shall deal with these in reverse order.

95.  Both Mr Shum and Ms Chu have been educated up to Form 5 in Hong Kong and said to understood basic English. Insofar as Mr Shum is concerned, having observed him over the course of the trial where he represented himself, it was clear that he was an intelligent and street savvy businessperson. It is also clear that he was able to understand at least some of the questions that had been put to him in cross-examination even before they were interpreted into Cantonese. This is of course unsurprising for someone who resides and has received education in Hong Kong. Although Ms Chu obviously did not have Mr Shum’s experience and savviness, I found her nonetheless to be an articulate and reasonably intelligent person. In December 2014, Mr Shum (who was born in 1972) would have been 42 years of age, and Ms Chu, 26. Of course, some years have elapsed since the Disputed Documents were signed in 2014, and in the case of Ms Chu, she may have gained in maturity over the years.

96.  That said, I have considerable difficulty accepting even in 2014 that either Mr Shum or Ms Chu would have been blindly willing to sign their names on blank or partially blank sheets of paper or forms in what was plainly a legal context, on the faith of a solicitor’s clerk who had, on their own cases, been instructed and was acting for the interests of Mr Li. Indeed, in cross-examination, Mr Shum conceded that he was unable to explain why he would do so.

97.  Dealing first with Mr Shum, he accepted that he signed on the Companies Registry forms, albeit he said that the forms had not been filled in. In other words, it is not his case that he signed on completely blank sheets of paper onto which the forms were only subsequently printed. It is inconceivable for Mr Shum to have believed that the forms were merely for the purpose of “解釘”:

(1)     Form ND4 was a two-page bilingual printed form. The top of the first page had a title in large bold font, in both Chinese and English, “公司秘書及董事辭職通知書 Notice of Resignation of Company Secretary and Director”. On the second page, which Mr Shum signed at the bottom, at the top were the words in bold, “辭職通知 Notice of Resignation”, followed then by boxes to be ticked indicating various options in both English and Chinese as to whether a notice of resignation was necessary under the articles of the company and whether such notice had been given. Immediately underneath the signature line were the words, “辭職的公司秘書/董事 Resigning Company Secretary / Director)”.

(2)     Form ND2A was a three-page bilingual printed form. The top of the first page had a title in large bold font, in both Chinese and English, “更改公司秘書及董事通知書（委任/停任）Notice of Change of Company Secretary and Director (Appointment/Cessation)”. On the third page, which Mr Shum signed at the bottom, at the top of the page had the words in bold, “委任公司秘書/董事（法人團體） Appointment of Company Secretary / Director (Body Corporate)”.

98.  Even if the two forms had not been filled in, it is plain that they were concerned with the appointment and resignation of company directors. Indeed, as was suggested to Mr Shum in cross-examination, he would have seen similar forms when he acquired Win City and was himself appointed the sole director in 2013 and signed on the annual returns for the following year. I will come back later to one such annual return which he signed in January 2015.

99.  Mr Shum’s only answer in cross-examination was that “I didn’t read carefully” and that he did not know what he was signing, but signed anyway without query as he believed that by signing he could “解釘”. I found his professed level of naivety to be wholly incredible.

100.  Mr Shum also accepted (as did for the most part, Ms Chu) that the Instruments of Transfer and the Bought and Sold Notes he signed were not entirely blank at the time, and only the particulars to be filled had not been typewritten in. At least the headings in large caps and in bold, “Instrument of Transfer”, “Sold Note” and “Bought Note” and the name “Win City Limited” had all been there at the time. Underneath his signature on the Sold Note was his name and the word, “(Transferor)”. Yet, Mr Shum said he did not think at the time the forms were concerned with the transfer of Win City’ shareholding, claiming that he did not understand English.

101.  Again, I must reject Mr Shum’s evidence in this regard. I have no doubt that Mr Shum’s level of English would have allowed him to understand at least the words, “transfer”, “sold” or “bought”. I also reject the notion that he believed signing such documents were necessary merely to “解釘”, as he contends.

102.  Moreover, Mr Shum signed his name a total of some 13 times on the Disputed Documents. On the face of the documents, he signed the Shares SPA twice, first as a vendor, and second, next to the SPA Receipt Clause confirming receipt of the initial deposit and part payment of the purchase price in the sum of HK$10,000,00. He also signed the Deed of Indemnity twice, first on behalf of himself, and second, on behalf of Win City, next to Win City’s seal. As mentioned above, he also signed the Board Minutes, Form ND2A, Form ND4, the HK$33M Loan Agreement (three times, first as borrower, second, confirming receipt of HK$33,000,000 and third acknowledging receipt a copy of the agreement), the Section 18 Memorandum and his Instrument of Transfer and Bought and Sold Notes.

103.  Leaving aside his four signatures on the two Companies Registry forms and his Instrument of Transfer and Bought and Sold Notes, which I have already discussed above, Mr Shum would have signed his name 9 more times on, as it were, blank sheets or partially blank sheets of paper, allegedly for the purpose of “解釘”. In my view, Mr Shum is far too savvy a person to have done something as reckless or cavalier as that. Indeed, on Mr Shum and Ms Chu’s case, they were not even provided with copies of the documents they signed that day, nor did they ask for such copies at the time.

104.  Another strong indica, in my judgment, that Mr Shum well knew he was not merely signing documents to “解釘on 19 December 2014 was that, at Mr Chan’s request, he not only brought with him Win City’s company seal and company chop to W&W’s office, but he handed them over Mr Chan. He would have been aware that the company seal and chop are the property of Win City and important tools for the operation of the company. Moreover, on his own case, the reason he needed to “解釘” in the first place was to enable Win City to sell the Lexington Property, which would invariably have required the company seal and chop.

105.  When asked in cross-examination why he did not retrieve the seal and chop, he answered that he wanted to wait until the Purported 2014 Encumbrance had in fact been withdrawn and that the sale of the Gardenia and Kensington Properties completed on 26 February 2015. He also said he “had a headache at the end of 2014 and early 2015” with all that was going on and felt that there was no urgency to retrieve them since they were being kept in a solicitor’s office. However, on his own evidence, W&W were not his own solicitors. Again, I find his evidence in this regard wholly incredible.

106.  As for Ms Chu, on the face of the documents, she signed her name 4 times: once on her Bought and Sold Note, once on her Instrument of Transfer, and twice on the Shares SPA - once as a vendor, and again next to the SPA Receipt Clause (on a different page).

107.  As mentioned above, she accepted, that when she signed on her Bought and Sold Note, she saw at least the name of Win City and her own name filled in. Even with her limited English ability, she would have recognised at least the words, “Sold” and “Name of Purchaser” if not “Transferor” on the upper portion of the document. She would at least have raised queries had Mr Chan told her and Mr Shum and she genuinely believed that they were merely signing documents for the purpose of “解釘”. As for the two signatory pages now attached to the Shares SPA, as mentioned above, I have difficulty accepting, even with her limited business experience, her evidence that she signed them in blank and unattached to other pages, especially when viewed in the round with her evidence concerning the Bought and Sold Note.

108.  In cross-examination, she sought to explain that she trusted Mr Chan as a professional and did not think that she would be cheated in a law firm. However, her explanation is far too naïve given that she did not herself think that Mr Chan was acting for her or Mr Shum. In my judgment, the reality is that she trusted Mr Shum and would likely have signed whatever documents Mr Shum asked her to sign, perhaps without caring much as to what Mr Chan or the document actually said. As mentioned above, she does not suggest that Mr Shum had somehow misled or unduly influenced her to sign the documents.

Errors and Anomalies in the Disputed Documents

109.  There are, indisputably, a number of errors and anomalies in the Disputed Documents, which Mr Shum and Ms Chu have pointed out to cast doubts on Mr Li and Mr Chan’s case.

110.  First, there appears to be an anomaly in the page numbering of the signature pages of the Shares SPA. The Shares SPA runs to 35 pages, with page 35 being the back cover sheet, which showed the page number at the bottom. The last page containing the terms of the agreement was page 31, which also contained the page number at the bottom (as well as in all the preceding pages). As for the 3 signatory pages between pages 31 and 35: one page containing the signatures of the vendors (i.e. Mr Shum and Ms Chu) together with the witness signature of Mr Chan and another signature of Mr Wong verifying the signature of Mr Chan (the vendors’ signature page); one page containing the signature of the purchaser (i.e. Mr Li) with the witness signature of Mr Chan (the purchaser’s signature page); and finally, one page containing the SPA Receipt Clause with the signatures of the vendors (i.e. Mr Shum and Ms Chu) and again the witness signature of Mr Chan (the receipt clause page). Only the purchaser’s signature page had a page number at the bottom of “33”, whilst the vendors’ signature page and the receipt clause page did not have a page number.

111.  In cross-examination, Mr Chan told the Court that when he was explaining the documents to Mr Shum and Ms Chu, he discovered two errors, namely, a HKID number on the vendor’s signature page and the amount received in the receipt clause on the receipt clause page was stated to be HK$1 million rather than HK$10 million. He therefore asked his colleague to correct the errors. He did not notice that the two reprinted pages did not have any page numbering at the time.

112.  As mentioned above, the figure of HK$9,900,000 on each of Mr Shum and Ms Chu’s Bought and Sold Notes (each representing 50% of the purchase price) was written in manuscript. In cross-examination, Mr Samuel Cheng challenged Mr Chan as to why it was not printed but written in manuscript. Mr Chan said that he had to be careful and did not want any error in the calculation and so he left it blank until everything had been calculated. However, he accepted that he could not explain why such a relatively simple calculation would have warranted separate treatment.

113.  Further, as mentioned above, Mr Chan’s evidence was that he took Mr Shum and Ms Chu through and explained to them each of the terms of the Disputed Documents. However, it is clear that there are a number of errors in the Shares SPA that should have been caught (but apparently were not) by Mr Chan when he is said to have showed and explained the documents to Mr Shum and Ms Chu (and again to Mr Li).

114.  First of all, Clause 3 of the Shares SPA provided that:

“Purchase Consideration

3.1 The purchase consideration for the Subject Shares shall be the sum of HK$19,800,000.

3.2 The said sum of HK$19,800,000.00 shall be paid by the Purchaser to the Vendor respectively in the following manner:

3.2.1 HK$10,000,000.00 has been paid by the Purchaser to the Vendor directly as initial deposit and as part payment of purchase price;

3.2.2    HK$9,800,000.00 to be paid by the Purchaser to the Vendor being balance of purchase price upon Completion.”

115.  There is no serious dispute that, as mentioned above, Win City’s sole asset was the Lexington Property, which was worth between HK$18 million to HK$20 million at the end of 2014 and the beginning of 2015. Mr Shum’s own case was that it was worth around HK$20 million (no expert evidence was filed in this regard). Obviously, the value of the Win City shares must take into account Win City’s liabilities, namely, the loans secured by the OCBC and Easy Dollars Mortgages.

116.  Mr Li’s case and instructions to Mr Chan were that the HK$10,000,000 would be treated as part payment by procuring the release by Wiseful of HK$10,000,000 of Mr Shum’s indebtedness. The balance of the consideration pf HK$9,800,000 was roughly the amount of the outstanding sums payable under the two mortgages. The plain intention of the parties must have been that the balance of HK$9,800,000 payable upon completion was not intended for Mr Shum and Ms Chu’s own retention, but for the purpose of discharging the mortgages. Unfortunately, this was not properly reflected in Clause 3.2.2, and there are no provisions in the Shares SPA or the Deed of Indemnity requiring Mr Shum and Ms Chu to discharge Win City’s liabilities on or prior to completion. At the least, this was careless drafting on the part of Mr Chan. I will come back to this later.

117.  A further instance of careless drafting was Clause 16 of the Shares SPA, which provided that:

“Each party shall bear its own legal and professional fees, costs and expenses incurred in the negotiation, preparation and execution of this Agreement and the transfer of shares. The stamp duty in respect of this transaction shall be borne and paid by the Purchaser absolutely.”

118.  As mentioned above, Mr Chan and Mr Li’s case is that the fees and expenses for the drafting and execution of the Disputed Documents were to be borne by Mr Shum. This understanding was reflected by the fact that Mr Shum subsequently paid the fees and expenses of HK$95,000 and was issued with the W&W Receipt. Again, this error in the document was not caught when Mr Chan is said to have explained the terms of each of the documents to Mr Shum and Ms Chu (and Mr Li).

119.  Yet another error in the Shares SPA was the inclusion of paragraph 7.3 in Schedule 2, which was concerned with “Representations, Warranties and Undertakings”. Paragraph 7.3 provided that:

“Apart from the existing 7 staff and one UK Agent, there is no other scheme or fund in respect of the retirement, pension, health insurance, housing, bonus incentive, share option or other benefits to directors, officers, staff, employees, or any other party to which the Company is a party or in respect of which there is any obligations or liabilities, present or future, actual or contingent.”

120.  It is plain, and readily accepted by Mr Chan, that that paragraph did not belong to the Shares SPA and was a remnant of a precedent used by Mr Chan to draft the agreement. Indeed, it is plain that there are a number of “boiler plate” provisions included in the Shares SPA which appear to have little relevance to this transaction.

121.  There are also unsatisfactory features regarding the HK$33M Loan Agreement. The recital of the agreement provided that inter alia:

“The Borrower(s) [defined as Mr Shum] has applied to the Lender [defined as Wiseful] for the grant of a loan of HK$33,000,000 [and] At the Borrower(s)’s request the Lender agreed to lend to the Borrower a sum of Hong Kong Dollars THIRTY THREE MILLION (HK$33,000,000.00) (hereinafter called “the Loan”) upon and subject to the terms of this Agreement and the Borrower(s) has agreed to borrow the Loan on the terms provide herein…”

122.  Clauses 1 to 3 also provide inter alia:

“1. The Loan

Subject to the terms of this Agreement, the Lender agrees to make available to the Borrower a loan in the principal amount of HONG KONG DOLLARS THIRTY THREE MILLION (HK33,000,000.00) UPON THE TERMS AND CONDITIONS SET OUT HEREIN AND THE Borrower(s) hereby acknowledges receipt of the full amount of the loan.

2. Conditions Precedent

2.1 The Loan shall only be made available to the Borrower (upon and subject to the terms and conditions herein contained) when the Lender has received in form and substance to its satisfactory all of the followings:-

2.1.1 This Agreement duly signed by the Borrower accepting the terms and conditions herein;

2.1.2 The Security and Security Documents as stated in the First Schedule hereto duly executed and effected.

3. Availability

Subject to the terms and conditions set out in this Agreement, the Loan will become available to the Borrower upon satisfaction of the Conditions Precedent as stated above.”

123.  Plainly, the terms of the agreement above are inconsistent with Mr Li’s case on Mr Shum’s indebtedness, which Mr Chan said he was told by Mr Li prior to his preparation of the documents. On Mr Li and Mr Chan’s pleaded cases, Mr Shum was had already been indebted to Wiseful for a principal sum of HK$33,000,000 and interest of HK$9,700,000 by July 2014, as purportedly reflected by, inter alia, the July 2014 Memorandum. Mr Chan’s case is that he was instructed to draft an agreement to “confirm” the previous loans made by Wiseful which had accumulated to HK$33,000,000. Such a confirmation could easily have been properly reflected by the terms of the HK$33M Loan Agreement but was not.

124.  Whilst errors and imperfections in drafting often occur in practice, it is surprising that all of these matters would have been missed had Mr Chan gone through the documents in detail with Mr Shum and Ms Chu (and subsequently with Mr Li). In my judgment, Mr Chan likely significantly overstated in his evidence the detail and time spent by him showing and explaining the terms of the Disputed Documents to Mr Shum and Ms Chu.

125.  That said, negligence is one thing, but fraud is quite another. Having heard and considered Mr Chan’s evidence (as well as that of the other witnesses), notwithstanding my reservations above (as well as the matters below), I am not convinced that there is a sufficiently compelling basis to give rise to the inference that Mr Chan had somehow conspired with Mr Li to defraud Mr Shum and Ms Chu in the manner alleged.

126.  I therefore find on the balance of probabilities that Mr Shum and Ms Chu were in fact presented with the Disputed Documents as they now appear for signature (with the exception, of course, of Mr Li’s signatures and the Bought and Sold Notes and Instruments of Transfer undated), which Mr Shum and Ms Chu then signed on 19 December 2014.

127.  Further, even if Mr Chan had not shown or explained the provisions of the Disputed Documents in the level of detail he claims, it is quite another to say that he actively misled Mr Shum and Ms Chu as to the nature and purpose of the documents and the entire transaction. I find that Mr Shum and Ms Chu were aware of and understood at least the nature, purpose and the principal terms of the documents they were signing on 19 December 2014, and that Mr Chan did not misrepresent the same.

128.  That being the case, even if Mr Shum or Ms Chu did not understand fully the contents of those documents, given the absence of any misrepresentation or other vitiating ground, they are bound. As Ribiero PJ (with whom the other members of the Court of Final Appeal agreed) observed in Ming Shiu Chung & Others v Ming Shiu Sum & Others(2006) 9 HKCFAR 334 at 84:

“… Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

129.  I will come back to Ms Chu’s claim against Mr Chan and W&W for breach of solicitor-client retainer and negligence later.

Other matters raised by Ms Chu and Mr Shum

130.  A number of other matters were raised by Mr Shum and Mr Samuel Chan seeking to cast doubt as to the intentions of the parties prior to the execution of the Disputed Documents. I have considered them and do not think it necessary to set out them out in full here. For instance, Mr Samuel Chan contended in closing that:

(1)     It was unlikely that Mr Shum would have been willing to sell the Lexington Property due to the inability to pay the OCBC Mortgage instalments, which were relatively modest. However, I would note that in the period leading up to December 2014, Mr Shum was late for almost two weeks for each of the September and December instalments. Further, whatever his indebtedness to Mr Li or Wiseful was at the time, it is clear that he was in serious financial difficulties and likely facing significant pressure from his lenders, including Wiseful. Realising the Lexington Property would provide some relief.

(2)     Mr Shum’s company secretarial services provider, Kossilon Corporate Services Limited (“Kossilon”), filed an annual return for Win City for 2014 on 27 January 2015, which was apparently signed by Mr Shum. This is said to be consistent with Mr Shum’s belief that he was still a director and shareholder of Win City at the time. However, other than Mr Shum’s own assertion and a date chop, it is unclear from the evidence when Mr Shum actually signed the document. The information on the return was in fact correct, as it was stated to be the position as at 22 December 2014. One possibility is that that the return was signed by Mr Shum on an earlier date, and Kossilon only dated and filed it on 27 January 2021. No one at Kossilon has been called to give evidence. The evidence is at best circumstantial.

131.  In my judgment, none of the above matters, either singly or taken together, is sufficient to overcome the conclusion above that Mr Shum and Ms Chu knew and understood the nature and purpose of the Disputed Documents when they signed them.

V.     Implications as to Findings on the Disputed Documents

Sale of the Win City Shareholding

132.  In the light of my findings above, the Shares SPA, the Instruments of Transfer and the Bought and Sold Notes are valid documents binding on Mr Shum and Ms Chu.

133.  As mentioned above, Clause 3.2.1 of the Shares SPA provides that HK$10,000,000 has been paid by the Purchaser (i.e., Mr Li) to the Vendor (i.e. Mr Shum and Ms Chu). This is confirmed by the SPA Receipt Clause signed by Mr Shum and Ms Chu confirming receipt of the HK$10,000,000.

134.  Mr Shum and Ms Chu complain that neither of them has received the HK$10,000,000. Even if there is no estoppel arising from the Receipt Clause, the repeated references to the HK$10,000,000 sum in the Shares SPA would have been clear and obvious from even a cursory glance of the agreement. In my judgment, Mr Shum and Ms Chu would not have signed the Shares SPA, including, in particular, the SPA Receipt Clause, unless they were fully cognisant as to the reasons why they had not in fact received and would not be receiving, a sum of HK$10,000,000. It follows, and I find, that Mr Shum and Ms Chu were fully aware at the time and agreed that the HK$10,000,000 was to be set-off against Mr Shum’s indebtedness to Wiseful, as reflected by the Wiseful Receipt. As mentioned above, whether this was disadvantageous to Ms Chu is beside the point. There is no unjust enrichment as claimed by Ms Chu.

The HK$33M Loan Agreement

135.  In the light of my findings that Mr Shum and Ms Chu knowingly signed the Disputed Documents in the form in which they now appear, it follows that Mr Shum knowingly signed the HK$33M Loan Agreement.

136.  That said, I am not prepared to make any findings in these proceedings as to the validity of that agreement or indeed, the state of indebtedness between Mr Shum and Mr Li or Wiseful, save for the HK$10,000,000 which I have already addressed above. This is so, notwithstanding the invitation for me to do so in the list of issues submitted by the parties.

137.  First of all, Wiseful is not a party to these proceedings, notwithstanding its close connection to Mr Li and the dispute in these proceedings. Moreover, in his statement of claim and counterclaim to counterclaim in the First Action, Mr Li does not seek any relief in relation to the HK$33M Loan Agreement or any other sums allegedly owed to him by Mr Shum.

138.  I have already noted above the inconsistencies between the wording of the HK$33M Loan Agreement and the case advanced by Mr Li as to Mr Shum’s indebtedness to Wiseful and the fact that the agreement appears to have been signed by Mr Shum only.

139.  I would also indicate here that the relationship between Mr Li and Wiseful is, to say the least, murky.

140.  In paragraph 4(5) of Mr Li’s Amended Reply in the First Action, he claimed that he was Wiseful’s “sole beneficial owner”. Again, in paragraph 6(7) of the same document, Mr Li claimed to be the “owner” of Wiseful. However, in Mr Li’s re-amended reply, paragraph 4(5) was specifically amended to state that he was merely, “one of the beneficial owners”. On the other hand, Mr Chan’s defence in the Second Action also pleads that he was instructed by Mr Li that Mr Li was Wiseful’s “sole beneficial owner”.

141.  In cross-examination, Mr Li maintained that he was merely a beneficial owner, and the shareholder was one Mr Wong, who was “the boss”. He said he was only a director and would take a share of 10-20% of the company’s profits, but he would have to “guarantee” the loans he made on behalf of Wiseful. If a borrower introduced by him, such as Mr Shum, did not pay, he would personally have to repay.

142.  Moreover, in the July 2014 Memorandum, which did not have any letterhead, the principal of HK$33,000,00 and accrued interest of HK$9,700,000 were stated to be owed not to Wiseful, but to Mr Li personally. Mr Li himself is not a licenced money lender, and the Money Lenders Ordinance (Cap 163) renders loans by an unlicenced money lender potentially unrecoverable. It is also a criminal offence to be carry on the business of money lender without a licence.

143.  As mentioned above, Mr Jat drafted the July 2014 Memorandum and the July 2014 Schedule. He explained in his brief evidence that he was Mr Li’s personal assistant, and his job responsibilities included assisting Mr Li in accounting and personal secretarial matters, including Wiseful’s loan business. However, there was nothing to suggest that he was an employee of Wiseful.

144.  I should add here that although I have found in Mr Li’s favour in respect of the sale of the Win City shareholding, I was not impressed overall with his character, which I found to be somewhat unsavoury and predatory. I also have genuine doubts as to his professed kindness and generosity to Mr Shum throughout the years, particularly given that the loans made by him or Wiseful to Mr Shum were charging exorbitant rates of interest of 30% per annum. My firm impression is also that there is likely to be more to the relationship between Mr Li, Wiseful and Mr Shum than has been revealed to this Court. However, these will be matters, if at all, for another forum.

VII.    Events After the Disputed Documents

145.  As mentioned above, the original completion date under the Shares SPA was 16 February 2015. Under clause 3.2.2, the balance of HK$9,800,000 was to be paid to Mr Shum and Ms Chu on completion. However, on Mr Li’s case, the completion date was agreed with Mr Shum to be moved forward to 19 January 2015.

146.  As mentioned above, the plain intention of the Shares SPA must be that Mr Shum and Ms Chu were obligated to use the balance to discharge the OCBC and Easy Dollars Mortgages.

147.  Had it been necessary to do so, I would have been prepared to construe Clause 3.2.2 as requiring the balance of HK$9,800,000 to be paid to Mr Shum and Ms Chu upon completion to be used to discharge the OCBC Mortgage and the Easy Dollar Mortgage. Whilst the Court does not easily accept that people have made mistakes in formal documents, it is well established that in cases where the context and background would drive a court to the conclusion that “something must have gone wrong with the language”, the law would not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. In my view, this is a sufficiently strong case such that the Court may correct the mistake as a matter of construction.

See e.g. Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at paras 14-15, 22-25, per Lord Hoffmann.

148.  However, it is unnecessary for me to resort to such device, as I accept Mr Li’s case that a subsequent agreement was reached between Mr Li and Mr Shum for Mr Li to assume immediate responsibility for the mortgage loans rather than to pay the HK$9,800,000 to Mr Shum and Ms Chu. Given that I have already found above that Mr Shum and Ms Chu signed, inter alia, the Shares SPA with full knowledge that it was for the transfer of the Win City shareholding, the conduct of the parties is more consistent with such a variation agreement. First, there was no demand by Mr Shum and Ms Chu for payment of the balance of the HK$9,800,000, whether on the early completion date or, indeed, on the original completion date of 16 February 2015. It would have made little sense for Mr Li to repay and discharge of the Easy Mortgage on 31 March 2015 if he was still obligated to pay the same amount to Mr Shum and Ms Chu.

149.  It also follows that I reject Mr Shum’s case that he only discovered that he had signed the Shares SPA in the beginning of March 2015. There can be no doubt that Mr Shum attended W&W’s office and entered into a heated argument with Mr Chan, a portion of which was recorded on his mobile telephone. Having been shown the video, there is nothing in my view that can be said, as Mr Shum seeks to contend, to be an admission by Mr Chan that he had given Mr Shum and Ms Chu blank documents to sign or that he had tampered with or fabricated the Disputed Documents. I also reject Mr Shum’s evidence that Mr Li had agreed to return the Win City shareholding to him and would instruct Mr Chan to do so. Mr Shum’s contention that Mr Chan then invited him repeatedly to go to W&W’s office to sign documents for the return of the shareholding must also be rejected.

150.  In respect of the oral licence allowing Mr Shum and Ms Chu to remain on the Lexington Property and its subsequent termination in April 2015, I accept that the evidence is not entirely satisfactory. As mentioned above, Mr Li’s case is that it was agreed that Mr Shum and Ms Chu would be allowed to continue occupying the property provided that Mr Shum continue to service the OCBC Mortgage (approximately, HK$26,000 per month) and pay property management fees, rates and utilities. However, this is plainly inconsistent with the allegations and demands made in the Letter Before Action from W&W, which claimed that there was an oral tenancy from 19 January 2015 onwards at a monthly rent of HK$82,351. The same allegations were repeated in original statement of claim in the First Action.

151.  It is also disputed and not immediately obvious from the documentary evidence who in fact paid the OCBC Mortgage instalments and property management fees in the period between January and April 2015. However, even if I am prepared to accept that they were paid by Mr Shum, as I have found that the Win City shareholding was validly sold to Mr Li, there is no reason why Win City, under Mr Li’s control, would not be entitled to obtain vacant possession of the Lexington Property, if it so wished. It is not suggested that Mr Shum and Ms Chu has any enforceable right to possession against Win City. Any licence would have been a licence that is terminable at will.

152.  Hence, I am prepared to allow damages for trespass or mesne profits to be assessed from 1 May 2015 onwards until vacant possession of the Lexington Property by Mr Shum and Ms Chu. By a joint letter from Mr Li and Win City’s solicitors, Mr Shum, and Ms Chu’s solicitors to Master Ho dated 17 May 2019, it was agreed between the parties that such damages or mesne profits, if any, would be assessed at HK$41,000 per month.

VII.    Mr Chan and W&W

153.  As I have rejected Mr Shum and Ms Chu’s case of fraud against Mr Chan, it remains to be determined whether Mr Chan and W&W are liable for breach of the solicitor-client retainer or negligence, as claimed by Ms Chu.

154.  I have already explained in my preliminary observations the  inherent difficulties with such an alternative plea in the circumstances of this case, as it would necessarily involve finding liability on facts which are fundamentally different from those contended by Ms Chu which I have found against.

155.  In the course of the trial, I pointed out to Mr Samuel Chan that there was a further difficulty on causation on this pleaded case, as it was not alleged that had Mr Chan not misrepresented (on her case) the true nature of the documents, or had he properly advised her of (on her case) the true nature of the Disputed Documents, she would not have signed. After Ms Chu had given her evidence, Mr Samuel Chan applied to amend her statement of claim in the Second Action to make such an averment. I allowed the extremely late amendment as it was not objected to by the other parties. Ms Chu was then recalled into the witness box specifically to address this issue, where she then (unsurprisingly) told the Court that she would not have signed.

156.  Irrespective of the detail of Mr Chan’s explanation of the terms of the Disputed Documents to her and Mr Shum, I have found, inter alia, that Mr Chan did not misrepresent the nature and effect of the documents, and more importantly, that Ms Chu and Mr Shum were well aware that the documents they were signing were for the sale of the Win City shareholding. It is also not Ms Chu’s case or evidence that had a particular provision or particular provisions in the Shares SPA been explained to her more carefully, that would have affected her decision whether to enter into it or she would have avoided some loss as a result. Her case is that the entire nature and purpose of the documents were misrepresented to her, which I have rejected.

157.  I also reject Ms Chu’s contention that there was any retainer, express or otherwise, between W&W and either Mr Shum or Ms Chu. This is so notwithstanding that in Clause 4.1 of the Shares SPA, it is stated that completion shall take place at office of the vendors’ solicitors, which are said to be W&W.

158.  As mentioned above, Ms Chu’s own evidence was that Mr Chan never said to her and Mr Shum that he represented either of them.  Even though Mr Shum paid for the legal fees pursuant to his agreement with Mr Li, it is plain to me that Mr Chan was acting for and represented Mr Li in the transaction, including the drafting and execution of the Disputed Documents. Ms Chu’s case on retainer is in any event premised upon a retainer to Mr Chan and W&W to execute documents to “解釘” on 19 December 2014, which I have already rejected.

159.  Surprisingly, W&W and Mr Chan advance contradictory cases as to who were W&W’s clients. In the Second Action, W&W pleaded that,

“At all material times, Win City was the only client of W&W in respect of the transfer of shares in Win City and W&W only received instructions from Shum as the sole director of Win City. At all material times, Chu never purported to retain W&W as her leal adviser or legal representative. Chu never purported to give any instruction to W&W or sought any legal advice from W&W.”

160.  On the other hand, Mr Chan pleaded in the Second Action that he after receiving instructions from Mr Li, he subsequently,

“… contacted Shum and informed Shum that he was acting for [Mr Li] for the Sale of Shares, and further obtained the instructions and confirmation from Shum to act for him and [Ms Chu], and to proceed with the preparation of the relevant documents… by 18th December 2014 and based on the instructions of [Ms Li] and Shum (also for and on behalf of [Ms Chu]), [Mr Chan] prepared [the Disputed Documents]…”

161.  In cross-examination, Mr Wong had little recollection of the matters in dispute. He could not recollect whether there was a written retainer, which he accepted was required under Law Society guidelines. He insisted that W&W were acting for Win City, although he accepted that there was unlikely to be a board resolution and the person giving instructions was actually Mr Li. He said he knew that Mr Li could not represent Win City at the time, but he also knew that after the transaction Mr Li would become the sole shareholder, and so Win City could always “ratify” his instructions. With respect to Mr Wong, his evidence was nonsensical and highly disingenuous.

162.  It evident that Mr Wong had little idea of what went on, and Mr Chan operated with minimal, if any, supervision from him. In his witness statement, he said that W&W accepted the retainer from Win City and Mr Chan was delegated the following work under his “supervision”. He said that he saw the final versions of the documents and signed to verify Mr Chan’s signature, although it does not appear that he had provided any input or commented upon the documents.

163.  Needless to say, it is utterly unsatisfactory that a firm of solicitors and its clerk cannot even agree upon who they were acting for.

164.  The problem is compounded by the W&W Receipt and W&W’s apparent loss of the working file. By a letter dated 18 May 2018, Ms Chu’s solicitors, Messrs Wan & Leung, wrote to W&W seeking specific discovery of:

“…the whole file regarding the transfer of shares, including but not limited to all correspondence, attendance notes, retainer, fee note, bill, invoice, case documents, questionnaire on due diligence, board resolution of the 4th Defendant [Win City]…”

165.  On 24 July 2018, Ms Chu made an application for specific discovery against W&W in the Second Action for the case file. By an affirmation dated 25 January 2019, Mr Wong explained that on or about December 2014, a file was created by W&W in relation to the transfer of shares in Win City, and a reference number was created for that file. However, on 14 December 2018, pursuant to a Notice of Intervention, Messrs Chiu & Lau took possession of W&W’s office until 21 December 2018, when possession of the office was returned to him. Subsequently, the staff of Chiu & Lau returned certain documents to Mr Wong, amongst which were 8 A4 lever arch files and a pile of documents relating to these proceedings. He then searched through the documents but could not find the documents sought by Ms Chu. In particular, the retainer, questionnaire on due diligence, board resolution of Win City, attendance notes, bills and invoices, “if any”, were not now in his possession custody or power. In cross-examination, he said that the working file (as opposed to the litigation files) was “lost”.

166.  Whilst the loss of the case file is highly regrettable, I do not believe that it was necessarily due to any sinister intention on the part of Mr Wong and Mr Chan but was rather indicative of the shambolic manner in which the firm was managed. It is of little surprise that the Law Society has since intervened in the practice of the firm and that Mr Wong has ceased practice.

167.  I also reject Mr Chan’s case that he had obtained Mr Shum and Ms Chu’s instructions for him to act for them in the preparation and execution of the Disputed Documents as well as W&W’s contention that the firm was instructed by Win City. In my judgment, the retainer was plainly between Mr Li and W&W.

168.  In any event, for the reasons I have already explained above, I do not accept that Ms Chu suffered any loss or damages as a result of the acts or omissions of Mr Chan. It follows that her claims against Mr Chan and W&W (for vicarious liability) must fail.

VIII.   Conclusion and Costs

First Action

169.  For the reasons above, I grant the order for vacant possession of the Lexington Property, together with damages against Mr Shum for trespass or alternatively, mesne profits to be assessed in accordance with my calculations above.

170.  I award interest to Win City at 1% above HSBC’s best lending rate up to the date of judgment, and at judgment rate thereafter until payment.

171.  I direct that Win City submit the calculations in the draft order for the Court’s approval.

172.  I dismiss the counterclaim and make no orders on Mr Li’s counterclaim to counterclaim.

Second Action

173.  The Second Action is dismissed.

174.  On the counterclaim of Win City, I grant the order for vacant possession of the Lexington Property, and order that Ms Chu be jointly and severally liable with Mr Shum for trespass or alternatively, mesne profits to be assessed in accordance with my calculations above.

175.  I make no order on Mr Li’s counterclaim.

176.  I award interest to Win City at 1% above HSBC’s best lending rate up to the date of judgment, and at judgment rate thereafter until payment.

177.  I direct that Win City submit the calculations in the draft order for the Court’s approval.

Costs

178.  As Win City and Mr Li have succeeded in the two Actions, I order that:

(1)     Mr Shum shall bear the costs of Win City and Mr Li in the First Action, to be taxed on a party and party basis, if not agreed; and

(2)     Ms Chu shall bear the costs of Win City and Mr Li in the Second Action, to be taxed on a party and party basis, if not agreed.

179.  As for Mr Chan and W&W, although they have succeeded in their defence to the counterclaim in the First Action and to the Second Action, not only am I not entirely impressed with their evidence, but I have also found their professional conduct in the handling of the transaction, including inter alia the numerous drafting errors, lack of written retainer, lack of proper record keeping and loss of the case file, to have been seriously wanting. Their conduct also caused significant confusion and wasted time and costs at the trial.

180.  Taking a broad-brushed approach, I order that:

(1)     Mr Shum shall bear only 50% of the costs of Mr Chan in the First Action, to be taxed on a party and party basis, if not agreed; and

(2)     Ms Chu shall bear only 50% of the costs of Mr Chan in the Second Action, to be taxed on a party and party basis, if not agreed.

(3)     There be no orders as to costs in respect of W&W in both the First and Second Actions.

181.  Ms Chu’s own costs are to be taxed in accordance with Legal Aid Regulations.

182.  All of the costs orders above are on a nisi basis.

183.  Lastly, I thank counsel for their assistance.