GLORY LINK INVESTMENTS LTD v. YOUNG PUI YORK

HCA 1240/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1240 OF 2009

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JUDGMENT

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1. Somewhere in West Samar Island in the Philippines are some mines or potential mining areas which contain bauxite ore, used in the manufacture of aluminium. Aluminium is a high value commercial commodity which is used in the manufacture of a wide range of goods.

2. In common with all metal-bearing ore it requires considerable capital cost to explore, extract, transport and refine.  Calculations, sometimes very precise ones, have to be made to reveal the percentage of the desirable metal in the ore in order to make a commercial value judgment as to whether it is economically worthwhile to undertake such a venture.

3. One of the basic essential preliminaries is to obtain representative samples of the ore for analysis by experts, and advice on the commercial liability of such a venture, also by experts in the field.

4. Those interested in such a venture may or may not have the necessary capital to fund it.  If they do not, they will have to look at the available means of raising such capital.  Any persons interested in being involved in such a venture would want to be sure of the preliminary requirements before committing themselves in terms of capital investment, whether they be experts in this particular field or not.

5. Two Philippine companies known as Bauxite Resources Incorporated and Alumina Mining Philippines Incorporated had by virtue of identical written agreements, known as Mineral Production Sharing Agreements, with the Government of the Republic of the Philippines, acquired the exclusive right to explore for, and develop and utilise commercially, bauxite and associated mineral deposits in separate contract areas in Western Samar identified by geographical coordinates.  The initial exploration periods were for two years and the agreements were to be for a twenty five year period in the first instance. They were dated 4 December 2002.

6. The principal shareholder of these two Philippine corporations was another Philippine company entitled Alba Aluminium Holdings Incorporated, of which the principal shareholders were   Hung Kwok Bun and Chua Hun Siong.  They were parties to this action but have not participated in it now that Mr Chua has died and Mr Hung, who is also a Philippine resident, has remained outside Hong Kong’s jurisdiction.

7. This situation leaves the Defendant, Mr York Pui Young (or Yeung) as the material personality.  Mr Hung and Mr Young were known to each other probably since the 1980’s.  Both of them ran tourist or travel agencies and had business dealings together in that context.  He also knew the late Mr Chua through Mr Hung but that was much later in time and close to the commercial transactions with which this action is concerned.

8. Mr Young was also a longstanding acquaintance and business colleague of the Plaintiff, Mr Gary Lui.  To the extent that one can rely on estimates of the length of these associations it appears probable that Mr Yeung knew Mr Hung before he met Mr Lui, or at least before he became involved in any commercial activity with him.

9. The circumstance that brought these four men into contact with each other was Mr Hung’s need for a joint venture associate to invest capital into the bauxite mining and development venture in the Philippines.  Any such investment in the project had to be through Philippine registered companies.  To this end Mr Hung and Mr Chua turned to the former’s long standing business associate, the first Defendant Mr Young.  Mr Chua seems to have taken something of a back seat in what developed from this decision.

Mr Young’s initial approach to Mr Lui

10. These two men had had various joint business interests in the past including a Karaoke club.  They had played Mahjong together.  In 2003 according to Mr Lui, Mr Young first raised the matter of an opportunity to invest in the bauxite mining venture in early 2003.

11. Mr Lui had a friend, also a business colleague, who had some experience of investment in metal mining, though not a specialised interest in the complexities of the business.  He was chairman of Asia Aluminium Holdings Company in Hong Kong and was keen to find a source of aluminium to invest in.  Naturally enough when told of the availability of investment in this project he wanted to see what information was available.  He was shown a number of documents which Mr Young had provided to Mr Gary Lui.  These included the original sharing agreements with the Philippine government, the reports from Earthcare (dated 3 July 2003) and from CNMC.

12. When Mr Young had provided these documents to Mr Lui he said, as one would have expected a person who was seeking investors for such a project to say, that there was a substantial deposit of bauxite of good quality – the latter meant in general terms that the alumina content was high, and the silica content low. 

13. The documents provided by York Young lent support to these assertions.  In terms of quantity it was represented to be of the order of 100 million tons.  In Mr Lui’s evidence said that York Young on two occasions referred to the people behind the venture in the Philippines as being “his partners”.  That can be a loose term but what was clear was that at no time did Mr Young suggest that he was a mere “middle man” or  “go-between”. His approach, and the reasonable impression to be derived from Mr Lui’s description of his role in the attraction of investment in the project and my own impression of him in the witness box, was that of someone intimately involved with and connected with all material aspects of the mining opportunities and the formulation of the nature and extent of the investment.

14. Mr Kwong’s reaction, according to Mr Lui, was of real interest but he wanted Mr Lui to be involved with him.  He had asked how long Mr Lui had known Mr Young, and he replied to the effect that they had known each other for about twenty years.

Mr Young’s next approach

15. Mr Lui went to York Young’s office principally to ask for more information.  This included ascertaining how much had already been spent on the project.  He was told that USD 5 million was already spent with some contribution from the government.

16. There was a discussion about the extent of the investment coming from Mr Kwong and Mr Lui as interested parties.  Majority rights were wanted – no doubt as a guarantee of some degree of control over investment – and Mr Lui indicated a potential investment of   20 million HKD for 80 per cent of the rights.

17. Mr Young’s reaction was that the remaining 20% would not be enough for “him and his partners”.  At that stage Mr Lui did not know who the “partners” were.  Mr Young’s counter was that 60% at the most was available and nothing less than a 25 million HKD investment was acceptable.  60% of the shareholding would be available but the investors would be responsible for all capital investment, with the partners not contributing any capital.

18. At this stage it seems to me that Mr Young’s role went far beyond being a middle man or “go-between”.  He was laying down the structure of the joint venture on  behalf of his “partners”.  One of  Mr Young’s additions to the package of encouragement to Mr Lui, was, according to Mr Lui, a statement that the quality – and this can only mean the quality of the material i.e. bauxite – was so good that raising finance would be no problem for Mr Lui or Mr Kwong, whom he knew by then to be the investor with the wherewithal.  Young said that Chinese and American companies had investigated the possibility of mining development for bauxite but needed excavation permits.  This was said, no doubt, to underline the advantage BRI and AMPI had with their existing agreements with the Philippine government.

19. The CNMC team had, said Mr Young, visited many places in the Philippines and that bauxite mines would be found only in the Samar Islands.

20. Mr Lui believed him to be in partnership with the other persons in the Philippines companies, and was their representative in Hong Kong.  He was also a director and shareholder in Pacific Orient International Limited, and, as became apparent later, was an   18 per cent shareholder in the joint venture company eventually formed,  Pacific Aluminium Holdings Limited.

21. The Joint Venture Agreement between Alba Aluminium, Pacific Orient International Limited and Glory Link Investments Limited was signed on the 15 February 2004, by Hung (for Alba), by Young (for Pacific Orient) and by Gary Lui (for Glory Link Investments).

22. It envisaged the establishing of a company called  Pacific Aluminium Holdings Limited “as a vehicle to facilitate the whole development structure”.  The initial proportion of interests held by the three companies is significant.  Alba was to hold 20 per cent (Hung’s company in the Philippines) Glory Link (Lui’s and Kwong’s company) was to hold 60 per cent and York Young’s company (Pacific Orient) was to hold   20 per cent (i.e. on a par with Alba).  Clearly York Young had a vested interest in the joint venture company.  This is entirely inconsistent with any idea that he was merely a middle man or “go-between”.  I shall review in due course his understanding of his position but simply on the basis of that joint venture structure he was a direct participant and although perhaps not a partner in the strict sense of the term he was to any observer involved in and a party to the overall project.  When in due course I consider the mechanics of the payment of monies from the investors it will be seen how important a cog in the wheel he was.

23. On the same date an agreement was signed between Alba (by Mr Hung) and Pacific Aluminium Holdings (by Mr Gary Lui) by which Alba transferred its entire bauxite mining right to Pacific Aluminium Holdings for an initial payment of 25 million HKD of which a deposit of 5 million HKD was to be paid after a site visit and review of all related original documents.  The balance was to be paid after all the legal documentation had been completed and due diligence carried out.

24. On the 11 March 2004 the original Joint Venture Agreement was superseded by another in identical terms save in one respect – the allocation of shareholdings in the joint venture company Pacific Aluminium Holdings.  It is material in that Glory Link’s holding increased by 2 per cent to 62 per cent.  It is not without significance that Pacific Orient International, the Defendant’s company increased its holding to 28 per cent, at the expense of Alba, whose holding went down to 10 per cent.  The signatories for the respective parties were the same. 

25. Yet another agreement dated 29 March 2004 was signed by Hung for Alba and by Lui for Pacific Aluminium.  In essence it repeated the same consideration for the transfer of the bauxite mining rights.

26. Sometime after the first agreement Mr Lui, Mr Kwong,   Mr Young, and a member of the last named’s staff went to the Philippines ostensibly to see the mining areas.  They met Mr Hung and Mr Lee, a representative of CNMC.  According to the Plaintiff, Mr Lui, the trip was cancelled because a typhoon.  There is a dispute about this but it is immaterial.  Mr Kwong and his assistant Benny were given some samples of ore extracted, for analysis. 

27. At about that time Mr Lui raised the matter of the percentage of Glory Link’s interest saying that it was not enough.  Mr Young’s reply was that he and the others did not have enough and that he himself, had only 5 per cent.  That of course was not accurate but agreement was reached on an extra 2 per cent for Glory Link at a price of 1.2 million HKD.  Hence the second agreement.

The payments

28. There was a number of these representing ‘staged’ payments.  The significance is that the initial ones went through the Defendant’s bank account, and then, according to his evidence he made various transfers or cheque payments to Mr Hung.  The Defendant had asked the Plaintiff to make the payments direct to him and this was done.  It is obvious that the Defendant was exercising complete control over the payments and the distribution of the money thereafter.  The payments were however made in odd amounts but I do not need to consider that aspect.  Ultimately the whole of the 25 million HKD was paid, the last two cheques, for 5 million HKD and 8 million HKD, being made payable to Johnny Hung.  This meant that 13.2 million HKD of the total consideration of 26.2 million HKD for 62% of the Joint Venture interest passed through the Defendant’s hands.

The Representation and the False MGB reports

29. Before the three final payments were made by the Plaintiff company to the Defendant and to Johnny Hung by cheques in 2005, a number of reports had come into Mr Lui’s hands by fax sent on the Defendant’s instructions on or about 11 November 2004.

30. Before these arrived Mr Lui had received other reports which showed that the percentage of silica was very high.  On discussing this with the Defendant the latter suggested that the samples drilled may not have come from the places where the bauxite with the high alumina content was concentrated and that perhaps CNMC had done its drilling in a hurry.  The tests would be done again the Defendant said.  Mr Lui was obviously concerned to some extent because when the eleven MGB reports arrived they showed a lower silica content which was relatively consistent.  This prompted him to ask if the reports had been manipulated.  According to him the Defendant replied that MGB was a Philippine government organisation and CNMC was supervising, so there was probably no problem.

31. These eleven reports were false ones in that they gave false readings.  But the reports themselves had been fabricated.  The false content had been superimposed upon MGB logo-headed notepaper and the purported signature and authentication of the responsible person was part forgery and part variation of the name of the official.  Mr Lui was persuaded that all was in order and the three major payments were made the next year in May, October and December 2005, totalling   20 million HKD. Although not formally conceded by the Defendant I am satisfied that these forgeries, fabrications or false documents – whatever term is appropriate – emanated from someone within the Alba Aluminium, BRI, AMPI and Pacific Orient complex of companies.  The evidence from the senior employee of MGB cannot be challenged.  They can have had only one purpose – to convince Mr Lui and his colleague and Glory Link, that the Joint Venture was still a viable and worthwhile project and that they should continue to invest in it.  And they did so.

32. In September 2004 (assuming the date on the document is genuine) Ponto Chan, an employee of the Defendant had written to Johnny Hung, on the Defendant’s instructions, a somewhat curious letter:

“As reflected by Mr Lui, to avoid competition with others who obtained the information about the findings of the laboratory report, he therefore suggested requesting the Ministry of Mines not to keep the relevant records. In this respect, it is hoped that Mr Hung can discuss with the Ministry of Mines as to how to handle it.”

33. Mr Hung had apparently replied:

“It is really difficult to speak with the government department. However, to respond to your request, I will try my utmost to have someone to do it but if there are any problems of responsibilities, I shall not be held responsible.”

34. The Defendant’s explanation for this is that he had received a phone call from Gary Lui saying that he (Lui) hoped that Hung would arrange for MGB not to keep the records so that any competitors would be unable to have access to them.  Mr Lui’s account is different.

35. He recalls a telephone call in September 2004 from the Defendant saying that many mainlanders were going to the Philippines to see what the potential for mining existed there and would approach the government. Hung, he said, had told him this and Young raised the idea of asking MGB not to keep any records since the figures were so good.

36. Mr Lui said that if Hung could do this, he would raise no objection, but he did not himself raise the idea. 

37. It seems to me that if MGB had provided reports at Hung’s request (or that of Alba or even of BRI and/or AMPI) then the latter would be entitled to ask MGB to keep them confidential and certainly not make them available to any potential competitor.  But perhaps that is not the way things work in the Philippines.  There is however a more sinister interpretation.  Was the Defendant or Hung already playing with the idea of fabricating reports using MGB’s purported authority and then seeking to have any original, less encouraging reports eliminated as part of a fraudulent scheme to deceive the investors?  That is of course a matter of speculation and unnecessary perhaps in the light of the fraud which did in fact materialise two months later.

38. Notwithstanding Mr Lui’s reservations about the content of the eleven reports, he relied upon what the Defendant told him.  The latter gave him the impression that the MGB reports were more accurate that the others which Mr Lui had seen and which formed a contrast to an important extent with MGB’s content.

39. At this crucial stage of affairs, which led on to the completion of the capital investment, it is important to consider part of the evidence of Mr Wong Siu Bun who was known to both key protagonists, socially and on the business scene.

40. He became aware of the dispute consequent upon the discovery that the 11 MGB reports did not emanate from MGB and were not genuine.  To some extent he tried to encourage some form of settlement – as a mediator perhaps.

41. In a discussion in the Defendant’s office the latter was complaining that Mr Lui had made a report to the Police to the effect that MGB’s reports had been forged as a result of which the Defendant had been arrested.  He said “Lui is full of shit – he knew everything he knew that the reports had been forged and had asked me to delete the reports.” Mr Wong’s recollection was clear enough – Young was saying “It is possible that the reports were forged and Lui knew of it.” The defendant added that the mines were nonetheless still worth something and that he would assist Mr Lui in selling them – for a commission – but there was no guarantee of a sale.

42. The Defendant denied that he said that the reports were forged – they were issued by a government authority so how could they be forged, was his reaction.  He also said that he did not assert that  Mr Lui knew the reports were forged, or that he himself knew or believed that they were forged.

43. I find this to be an extremely important piece of evidence.  I found Mr Wong Siu Bun to be a credible witness.  I believe his version of the conversation.  As a consequence the implications are clear.   Mr Young in what was probably a careless throwaway line, failed to realise at the time that he spoke to Mr Wong, that it would be utterly  nonsensical for Mr Lui to proceed (on his own behalf and on  Mr Kwong’s behalf) with the investment and hand over 20 million HKD if he knew or even thought that the reports were forged.  It would have been an act of madness let alone commercial disaster, and grossly irresponsible towards Mr Kwong.

44. But it clearly indicates that Mr Young knew that there was something unreliable, to say the least, about the reports, at the time (November 2004) and by trying to draw Mr Lui into that knowledge he hoped to relieve himself of any responsibility and take the sting out of any allegation against himself.

45. The utter crassness of the situation as postulated by him is illustrated by the fact that he had a significant financial benefit to be derived from the joint venture (or the investment at least) going ahead. If he in any way agreed with any reservations held by Mr Lui, or conceded that there might be flaws in the reports, he would be a substantial loser.  His whole purpose and his representations to Mr Lui had been driven by the desire to “clinch the deal”.

46. The reason he has rejected Mr Wong’s version is that it has dawned upon him that it is capable of being interpreted as an implied acknowledgement of complicity in the fraud perpetrated on Mr Lui and Mr Kwong.  If Mr Lui had had any idea or knowledge that the reports were fabricated, as Young alleged to Wong it could have come only from the Defendant.  His own evidence is peppered with unconvincing statements about his knowledge and his role.  Two of his most incredulous statements made in cross-examination were as follows:

“There was no need for me to know anything – my role was simply to pass on messages or documents,”

and

“Ponto (Chan) explained general results and findings of the mineral contents in the soil samples. Whether I could understand is another matter. I did not know what the reports were about”.

47. At a later stage in one short dismissive answer to Mr Anderson Chow SC for the Plaintiff, he said:

“In November 2004 [in the context of the 11 false MGB reports] I could not care less about the contents of the reports.”

48. In a valiant but unavailing effort to reconstitute him as a credible witness Mr Nicholas Cooney SC, his counsel, asked him, in effect what he knew from Ponto Chan about the reports:

“Chan told me the mineral content in a simple way. He said that there was too much water. He briefly explained the contents of the reports. He only told me that the reports had arrived and that he had passed them on. I thought they were genuine.”

49. By then the damage had been well and truly done in his   cross-examination – the short statement “I could not care less about the contents of the reports” suggested he had never considered them.  He was indulging in self-contradiction, to which he frequently resorted.

The Defence case

50. In contrast to the evidence of Mr Lui I found that of the Defendant somewhat evasive and defensive, and on some material aspects, quite unrealistic and highly improbable.  His attempt to portray himself as a commission earning middleman lacked credibility.  The nature of his role put him at the heart of the project, willing to comment on the content and reliability of some highly important analysis reports, and running a company of which he was the major of not sole shareholder, and which was at the heart of the agreements which constituted the joint venture.  He also found it extremely difficult to answer a direct question, preferring to ramble on about peripheral matters.

51. In part he relied upon a so-called “Letter of Authorisation” apparently dated 4 January 2004.  The content is somewhat bizarre.  He said it was prepared by Johnny Hung.  Yet Ponto Chan said that he was told by the Defendant to prepare it for Hung and Chua to sign.  There is of course no mention of payment by commission (or in any other way).

52. It contains the following:

“Should default occur due to any intentional or negligent misrepresentation of information contained therein, Mr Young Pui York is not liable for civil liabilities and/or criminal penalties.”

53. Whatever value such a document may have in relation to  Mr Young and Alba it affords not the slightest protection to the Defendant in his relations with anyone else viz. the Plaintiff, Mr Lui or Mr Kwong.

54. The dating may or may not be the real time of the letter.  I do not need to decide this.  But was the letter a contrivance on which the Defendant felt he could rely if he was party to any deception or fraud perpetrated or initiated by his partners, or if he practised such himself?  Again, that does not need to be resolved but it is hardly capable of bearing an innocent explanation.

55. At one stage he seemed to give the impression that  Ponto Chan was in fact the decisive personality running Pacific Orient for him and running also the office which served as the office for Pacific Aluminium Holdings Limited, as well as the bank account which was used to receive payments from Mr Lui/Mr Kwong/Glory Link, and make payments out to Johnny Hung.  Mr Lui made it clear that Ponto Chan’s contact with him was only as an administrative conduit.  Any matter of moment and problems were discussed directly with the Defendant.  The Defendant’s suggestion that he was himself a mere postal service operating between Johnny Hung and Mr Gary Lui, with Ponto Chan as the essential intermediary is quite unacceptable.

56. There were several topics on which his evidence was simply not within the realm of reason, but they were peripheral and I have concentrated on the critical issues and his position in this joint venture. Ponto Chan’s role was also peripheral.

57. He said that in relation to the contents of the MGB reports (the 11 false ones) he had to ask Johnny Hung to explain the content.  He was told the result was “ok”.  He then told the Defendant about the water content, and was then told by him to fax them to Mr Lui.  Ponto Chan said that he told the Defendant what Hung had said about the alumina and silica contents.  There is no doubt, in my judgment, that Young well knew the contents of the 11 MGB reports, and that they at face value, consistently showed a high alumina content and low silica content consistent with the “good opportunity” for investment in the joint venture which he had, so far, succeeded in “selling” to Mr Gary Lui.

58. It is not necessary to traverse in detail the way the payments by cheque made by Glory Link were dealt with.  I have dealt with it in summary form.  The Defendant contends that the payments that were made direct to his account formed part of the “commission” arrangement he made with Johnny Hung.  He then accounted to Hung after deducting his “commission”. He said that the shares he had were also part of the “commission” arrangement and that he was due to pay for these – although he accepts that he never did. I do not accept his evidence.  The “smokescreen” of a commission-earning middleman or go-between was a flimsy, patently dishonest web he sought to weave around these financial dealings which on examination show him to be an integral part of the “joint venture” scheme with a substantial stake in the successful attraction of investment by Messrs Lui and Kwong and Glory Link. He even attempted to explain away as “entertainment expenses” a proportion of the money retained by him, a lame diversion from the truth.

59. Nor is it necessary to go into the convoluted structure of companies which resulted from the mining agreements which BRI and AMPI obtained from the Philippine government.  The fact that Pacific Oriental International Limited – the Defendant’s company – held a stake, albeit a minor one, as were the stakes held by Alba (HK) and two other shareholders, is the only really significant fact.  That of course did not represent any capital contribution by it to the joint venture.  Only   Glory Link provided that, with the money going initially into the accounts of the Defendant and Hung.  The Defendant’s financial return from his efforts was a substantial one.

60. The true low-watermark of the Defendant’s value as a witness in his own cause was when he said “I did not know what bauxite was.” In the context of all its other shortcomings, his attempt to suggest that the shareholdings he had, through Pacific Orient, were held in some sort of trust for others – aided, he contended, by what I regard as some highly dubious, self-serving and unproven document – was hardly any better.

61. A letter dated apparently the 10 October 2005 sent by him to Hung and Chua states that 13 per cent of Pacific Aluminium Holdings is owned by his company, Pacific Orient, and that any benefit generated from the 13 per cent in future “will be shared by me and both of you.”  This seems to be another contrivance, lacking any real substance, intended to suggest that his shareholding, or some part of it was as nominee and really on trust for them.

What was the Defendant’s role in the Joint Venture?

62. I am satisfied that far from being a simple  commission-earning agent for Alba he was part of the joint venture and deeply involved in the negotiations which brought Mr Lui, Mr Kwong and Glory Link into it.  He had a significant financial interest in it and was its prime mover with regard to the potential investors.  Upon its success depended his very substantial monetary reward.  He had every reason to keep Gary Lui interested in the scheme and to convince him that the likely rewards from the mines would be commercially worthwhile.

63. In seeking to downplay his role and convey a degree of ignorance, reliant upon what Hung and/or Ponto Chan told him, he was not only being untruthful, and devious but also flying in the face of the obvious.  The contrast between his testimony and credibility and that of Mr Lui was marked.  I had found Mr Gary Lui to be an impressive witness, measured, straightforward, direct and honest.

What representations did he make?

64. Prior to the presentation of the 11 MGB false reports it is clear, and there is no serious dispute by the Defence, that the Defendant was trying to secure investment by Mr Lui, and/or anyone willing to be involved with Lui, in a joint venture, mining bauxite in the   Philippines island of West Samar.  In order to succeed he had to satisfy a potential investor that the potential venture was seriously worthwhile and not a speculative project.  It did not however need such a person as the Defendant to be cognisant of the finer details of the commercial viability of mining bauxite ore, but he would have to have some reliable, albeit generalised knowledge of the material to be extracted.  It boils down to one simple question – how good is the bauxite? There is no doubt that the defendant was giving Mr Lui the clear impression that it was of good quality.  Otherwise the discussions, negotiations would have gone no further.  The agreements signed were predicated on there being due diligence and satisfactory analysis results.  They would not have been signed but for the Defendant’s representations and preliminary indications from earlier reports.  The Defendant intended that the investors should act as in fact they did.  Earlier reports had shown low alumina content and high silica content.  “The tests would have to be redone,” he warranted. Thus the 11 false reports came into being.  He certainly knew that that favourable analysis reports were vital to the continuation of the project and investment. 

What did the Defendant represent concerning the 11 MGB reports (subsequently found to be false)?

65. I am satisfied that he represented them to be accurate.  He could hardly do otherwise.  He intended that Mr Lui, and his colleague or colleagues, should accept the picture conveyed by the reports.  It was in the Defendant’s interest that they should.  Otherwise a substantial part of his potential gain would be lost.  Although in his evidence he vacillated between holding himself out as authoritatively giving weight to these reports and seeking to distance himself from their content (because he realised their false nature) he could not escape from the fact that their acceptance by Mr Lui was essential to the Defendant’s scheme of things – keeping the commitment to the joint venture going.  It was a clear misrepresentation on his part because as he had indicated to Mr. Wong it was a fraudulent exercise on the part of someone, and he knew that there was something seriously wrong with the 11 reports, but at the very least, neglected to check on them.

WAS IT INNOCENT, RECKLESS OR KNOWINGLY DISHONEST?

Innocent?

66. There was a clear representation that the bauxite was of good quality, that he was a partner in the venture that the mines had great potential.  I have accepted Mr Lui’s evidence to this effect. In contrast the Defendant has tried to stress his role as an “unknowing” middleman.  But he had to have some knowledge of the quality of the bauxite in order to be able to “sell” his proposition.  He also had an unquestionable financial interest.

67. He has tried to move away from this picture but that effort is entirely unrealistic and dishonest.  There was nothing innocent about his initial representation.  He was eager to induce a commitment by investors.  That was the sole purpose of his approach.  There was no evidence to justify what he said about the mine and its “potential”.

68. It was at the very least a careless, negligent representation which he intended Mr Lui to act upon, and he did.  His conflicting evidence is a clear indication to me that there was no ‘bona fides’ on his part – his explanations are dishonest.  If he knew nothing of bauxite, or the relative significance of alumina and silica content he was being, at the very least, careless in the claims he made for the mining areas.  Apart from his alleged contact with Hung he made no contact with MGB concerning the questioned 11 reports from it.

69. The representation concerning the 11 MGB reports was so far from being innocent that it demonstrated a degree of   “light-footedness” on his part.  Faced with the fact that some earlier MGB reports that showed a high silica content and lower alumina content (which caused Mr Lui later to query whether there had been any manipulation to produce the 11 “encouraging” reports), he was forced to concede that the figures had not been good, and that perhaps the drilling was hurried, conducted in inappropriate sites, and needed to be done again.

70. When the 11 reports were produced, he sought to eliminate Mr Lui’s reservations by saying that there was no problem with them, they were more accurate and had come from a government department and been supervised by CNMC.

71. Once again the Defendant sought to distance himself from the status of the re-assuring, knowledgeable partner in the venture.  He had had to keep Mr Lui on board the venture, but the positive assertions he made to bolster the status and reliability of the 11 MGB reports made a nonsense of this.

72. The cumulative effect of his evidence, facile explanations, and inconsistencies between his testimony and written statements, has convinced me of his thoroughly dishonest approach to everything.  He was prepared to advance the content of the eleven MGB reports as the determining authoritative statement on the bauxite in order to allay whatever doubts Mr Lui held and expressed.  If he did not, the joint venture would slip out of his hands, and his financial interest would disappear.

Reckless or knowingly dishonest?

73. It is of no relevance to seek to distinguish between statements of fact or of opinion in this case.  The Defendant made false statements to Mr Lui as to the material content of the bauxite which he intended the latter to act upon.  If he knew nothing about bauxite there was no legitimate basis for his representations.  If he did know about bauxite and the significance of the analyses he was clearly reckless in the claims he made. One sentence in his own evidence illustrates this – “in November 2004 I could not care less about the contents of the reports” – and, a little earlier – “I did not know what the reports were about.”

74. In my judgment he made such representations at least recklessly on the Derry v Peek (1889) 14 App Case p.337 principle:

“……Fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states.” [Lord Herschell at p.374].

75. I have also had to consider whether he made these representations knowing that they were false.  Because the Defendant has been dishonest in his evidence in so many respects it might be too easy to conclude that he knew at the time that the 11 MGB reports were fabrications, forgeries and that he was party to that fraudulent exercise.  I have real suspicions about his involvement in this regard but I do not think I can make that essential link to what was criminal activity on the balance of probabilities, in order to make me sufficiently confident in such a finding. However the Plaintiff succeeds in this action on the basis of my finding of reckless misrepresentations, and it will have judgment accordingly.

Quantum

76. The agreement for the Joint Venture required the Plaintiff and/or the joint venture company PAHL, to fund the project on its own.  The losses therefore were extensive and diverse.

77. The sums paid to the Defendant and Hung for the share – 62% of the company PAHL – totalled 26.2 million HKD.  The deposit of 5 million HKD was paid on the 1 and 17 April 2004.  There was a total failure of consideration.  The payment of the investment sums was induced by the misrepresentations and the Plaintiff, being the company funding the payments is entitled to recover those sums.  The same applies to the payments made in 2005 pursuant to the same agreement and payment of which was induced by the same method. 

78. In the Plaintiff’s Revised Schedule of expenditure are set out the individual items with the material dates.  The Defence has not sought to challenge these figures on the premise that they are supported by documentation, were reasonable in view of the financing obligations on PAHL, and if the Plaintiff succeeded on liability would constitute losses directly flowing from that judgment.

79. These effectively are special damages and total   6,725,364.53 HKD.

80. There will therefore be judgment for the Plaintiff for  26.2 million HKD with interest from the dates of the various payments totalling that sum; and for 6,725,364.53 HKD with interest thereon running from the dates of the various payments.

81. The Defendant will also pay the Plaintiff’s costs to be taxed if not agreed.  Although this is a ‘nisi order’ it does not appear to me to be capable of challenge by the Defendant.