ATSUSHI USUI AND ANOTHERv. WONG TUNG YUEN AND OTHERS

HCA 17010/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.17010 OF 1998

--------------------

--------------------

-----------------------

J U D G M E N T

-----------------------

1. The plaintiffs claim against the 1st defendant for HK$30,000,000.00 being the balance of sale proceeds, against the 2nd and 3rd defendants for declaratory relief as to their entitlement of such sale proceeds and against the 4th defendant for damages for breach of warranty of authority. There are also related counterclaims by the various defendants against the plaintiffs.

2. At the start of the trial, counsel for the plaintiffs informed the Court that as a Bankruptcy Order was made against the 1st defendant on 13 August 2001 in the Companies Court, the plaintiffs will not seek to pursue their claim in these proceedings against the 1st defendant but will be content to prove the 1st defendant's debt to the plaintiffs in the course of the bankruptcy proceedings. The 1st defendant was neither present nor represented in these proceedings.

3. As a result, I am only concerned with the plaintiffs' claims against the 2nd, 3rd and 4th defendants and their counterclaims against the plaintiffs. However, references to the plaintiffs' claim against the 1st defendant will only be by way of background and to understand the dispute between the plaintiffs and the rest of the defendants involved in these proceedings since all the claims and counterclaims are inter-related.

Background

4. The 1st plaintiff and Tokuro Jo, deceased, ("Tokuro") were friends and business partners since the mid 1970's. Tokuro, who was the father of the 4th defendant, passed away in April 1998. The 3rd defendant is and was at all material times the wife of the 4th defendant.

5. In 1984, Tokuro, the 3rd defendant and others incorporated Tenland Company Limited ("Tenland") in Hong Kong. The business of Tenland was mainly operated in Mainland China.

6. Since 1986 up to 11 May 1993, the shareholding in Tenland was as follows :

1st plaintiff	500,000 shares
2nd plaintiff	375,000 shares
Tokuro	375,000 shares
3rd defendant	375,000 shares
Yau Tung Chung ("Yau")	375,000 shares

7. To fund its business operations, Tenland obtained a loan from the Bank of Yokohama on 19 February 1987 in the sum of US$1,299,545.16 ("the 1st Loan") for which the 1st plaintiff was the personal guarantor. The amount of the 1st Loan was applied for the business of Tenland.

8. On 4 March 1987, Tenland obtained a further loan from the Bank of Yokohama in the sum of US$325,945.24 ("the 2nd Loan"). Once again the 1st plaintiff personally guaranteed this loan which was also used for Tenland's business.

9. By an agreement and a supplemental agreement respectively dated 12 March 1991 and 22 August 1991 ("the 1991 Agreements") between all the shareholders of Tenland it was agreed between them that both plaintiffs, Tokuro and the 3rd defendant on the one hand (collectively called "the Outgoing Shareholders") would transfer all their shareholdings in Tenland to Yau on the other hand in exchange for Yau transferring to them certain properties in Shenzhen ("the Shenzhen Properties"). Under the 1991 Agreements it was further agreed that the Outgoing Shareholders would be responsible to pay off the debts owed by Tenland to Bank of Yokohama arising from the 1st Loan and the 2nd Loan.

10. On or about 5 December 1992, a buyer, in the form of the 1st defendant, was found for the Shenzhen Properties and a Letter of Intention was entered into between the 1st plaintiff, acting for the Outgoing Shareholders, and the 1st defendant.

11. Subsequently a formal agreement written in Chinese and dated 13 January 1993 was entered into between the Outgoing Shareholders on the first part, the 1st defendant on the second part and Yau on the third part ("the Chinese Agreement"). The Outgoing Shareholders agreed with the 1st defendant that the Shenzhen Properties would be sold by them to the 1st defendant for HK$40,000,000.00 to be paid by the 1st defendant by four installments as follows :

HK$1,000,000.00 upon signing the Agreement;

HK$9,000,000.00 before 15 February 1993;

HK$15,000,000.00 before 15 July 1993; and

HK$15,000,000.00 before 15 January 1994.

12. Pursuant to the Chinese Agreement, all except one of the shares of the Outgoing Shareholders in Tenland were transferred to Yau on 11 May 1993. One share was transferred to the 4th defendant.

13. The Shenzhen Properties were transferred to the 1st defendant and the 1st defendant paid the first two of the four installments totalling HK$10,450,000.00 (The extra HK$450,000.00 was by way of interests due to the fact that the 2nd installment was paid late by the 1st defendant). This money was paid to the 1st plaintiff's solicitors Messrs George Y.C. Mok by the 1st defendant. The money was used by the solicitors to set off the amount due by Tenland to the Bank of Yokohama leaving a balance of HK$1,770,844.71 which was paid to the 1st plaintiff by his solicitors in August 1993.

14. The 1st defendant has to date failed to pay any part of the 3rd and 4th installments totalling HK$30,000,000.00 which is the basis of the plaintiffs' claim against the 1st defendant.

15. The above background facts are not disputed by the parties taking part in these proceedings.

Plaintiff's claim against the 2nd and 3rd defendants

16. As already mentioned, Tokuro passed away in April 1998. By a consent order, the 4th defendant, being the son of Tokuro, was ordered to represent the estate of Tokuro, being the 2nd defendant herein for the purpose of these proceedings.

17. It is the plaintiffs' case that some time in October 1992, the 1st plaintiff had a meeting with Tokuro at the office of the 1st plaintiff in Tokyo when they had a discussion that if the Shenzhen Properties could be sold, such proceeds of sale should be used first to repay off the loans (to Tenland) and thereafter Tokuro would be happy to receive about 18,000,000 Japanese Yen for his shares in Tenland.

18. On 5 December 1992, the 1st plaintiff was introduced to the 1st defendant by the 4th defendant in Guangzhou in China. As a result of negotiations between the 1st plaintiff and the 1st defendant, they came to a basic agreement for the sale of the Shenzhen Properties to the 1st defendant for HK$40,000,000.00 to be paid in 4 installments. A Letter of Intention recording those basic terms were prepared and signed between the 1st plaintiff (acting on behalf of the Outgoing Shareholders). Present also at that meeting when the Letter of Intention was signed was the 4th defendant.

19. Immediately after the Letter of Intention was signed, the 1st plaintiff had a meeting with the 4th defendant alone. As a result of that meeting and the discussion between the 1st plaintiff and the 4th defendant, a memorandum in Japanese was written out by the 4th defendant evidencing an agreement between them that the 1st plaintiff would pay totally HK$4,220,000.00 (HK$3,000,000.00 at the end of August 1993 and HK$1,220,000.00 at the end of February 1994) to an account designated by the 4th defendant ("the Japanese memorandum"). It is the plaintiffs' case that at this meeting the 4th defendant purported to represent his father, Tokuro and also his wife the 3rd defendant and that such payment agreed with the 4th defendant as evidenced by the Japanese memorandum was to be the total entitlement of Tokuro and the 3rd defendant in respect of the distribution of the sale proceeds for the Shenzhen Properties by the Outgoing Shareholders ("the Japanese Agreement").

20. The plaintiffs say that the 4th defendant had either actual or apparent authority of the 2nd and 3rd defendants to enter into the Japanese Agreement on their behalf with the 1st plaintiff who was also representing the 2nd plaintiff.

21. It is on the basis of the Japanese Agreement that the plaintiffs claim for a declaration against the 2nd and 3rd defendant that out of the total sum of HK$30,000,000.00 and interests thereon (owing from the 1st defendant) the sum of HK$4,220,000.00 belongs to the 2nd and 3rd defendants and the remainder thereof belongs to the plaintiffs; alternatively for the Court to determine what proportion of the sum of HK$30,000,000.00 and interests thereon should belong to the plaintiffs, the 2nd and 3rd defendant.

Plaintiffs' claim against the 4th defendant

22. Initially the 4th defendant was not sued by the plaintiffs when the Writ herein was issued.

23. However, as a result of the defence raised by the 2nd and 3rd defendant that the 4th defendant had no authority to represent them in entering into the Japanese Agreement, and therefore the Japanese Agreement is not binding on the 2nd and 3rd defendants, the plaintiffs joined in the 4th defendant as a defendant in these proceedings claiming against him for damages for breach of warranty of authority should that be the case.

Defence of the 2nd and 3rd defendants

24. The defence of the 2nd and 3rd defendants are that they have never agreed with the 1st plaintiff as to how their share of the sale proceeds for the Shenzhen Properties should be divided and they have never authorised the 4th defendant to represent them in so far as any such agreement is concerned. They are therefore not bound by the Japanese Agreement if such agreement existed.

25. The 2nd and 3rd defendants accept that the first and second installments of the sale proceeds paid by the 1st defendant to the 1st plaintiff should be used by the 1st plaintiff to pay off the bank loans of Tenland and any other proper expenses of Tenland.

26. In the circumstances the 2nd and 3rd defendants say that their share of the balance of the sale proceeds to be paid by the 1st defendant in the amount of HK$30,000,000.00 should be pro rata the ratio of the shareholding of the Outgoing Shareholders. To that extent they counterclaim against the plaintiffs.

Defence of the 4th defendant

27. The 4th defendant admits signing the memorandum written in Japanese on 5 December 1992 with the 1st plaintiff but says that that was a private agreement between himself and the 1st plaintiff in their personal capacities whereby the 1st plaintiff promised to pay to the 4th defendant the total amount of HK$4,220,000.00 being commission and service fees promised to him by the 1st plaintiff for all the services previously rendered by the 4th defendant to the 1st plaintiff as well as for the business which the 4th defendant had introduced to the 1st plaintiff.

28. The 4th defendant denies that this Japanese memorandum was entered into by him as the representative of the 2nd and 3rd defendants or that it had anything to do with Tenland and denies that he was in breach of any warranty of authority.

29. The 4th defendant counterclaims against the 1st plaintiff for the sum of HK$4,220,000.00 and interests under the Japanese memorandum.

Assessment of the evidence

30. The 1st plaintiff, Atsushi Usui, gave evidence in Japanese with the assistance of a Japanese interpreter. Basically he adopted the contents of his witness statements in these proceedings as his evidence in chief. He struck me as a very shrewd astute and mature businessman greatly experienced in the business world. He was the only witness called by the plaintiffs.

31. Much of his evidence is supported by documentary exhibits. However, there are some parts of his evidence which I find quite unsatisfactory, some of which even contradicted by the documents as I shall be detailing below.

32. Firstly, concerning the debts of Tenland in particular the 1st and 2nd Loans from the Bank of Yokohama, the 1st plaintiff's evidence was that because Tenland was in difficulty paying off those loans, he was left with no other option but to pay off the loans and the interests from time to time on behalf of Tenland. At the time of his witness statement in these proceedings (dated 24 October 2000) he was still paying approximately 1,000,000.00 Japanese Yen to the bank every month.

33. This evidence was given undoubtedly to explain the basis of the plaintiffs' position as to why they say that the 2nd and 3rd defendants (who together held 46.15% of the shareholdings of the Outgoing Shareholders in Tenland) would agree to accepting only HK$4,220,000.00 under the Japanese Agreement for the disposal of their shares in Tenland when the total shares of the Outgoing Shareholders were effectively sold for HK$40,000,000.00.

34. Quite apart from the fact that no comprehensive statement of accounts was put into evidence by the 1st plaintiff to show the expenses incurred by him on behalf of Tenland for all this time, that evidence of his does not hold up when viewed against all the available documents in the case which are as follows :

(a) Under the Chinese Agreement the Outgoing Shareholders agreed to repay all the loans owed by Tenland to the Bank of Yokohama as well as all other liabilities of Tenland incurred before the date of the Chinese Agreement (13 January 1993) and that the 2nd installment payment from the 1st defendant in the amount of HK$9,000,000.00 shall be used for the settlement of such loans and other indebtedness (Clause 5 refers). In recital 5 of the Chinese Agreement it is stated that Tenland, at the date of the Chinese Agreement owed the Bank of Yokohama the total sum of US$947,555.62 and that "there are no other creditors" (my emphasis);

(b) A letter from the Bank of Yokohama Ltd, Hong Kong Branch dated 14 March 1991 and signed by its Senior Manager certifies the outstanding loan amount owed to it by Tenland as of that date to be US$873,050.20;

(c) Messrs George Y.C. Mok & Co., the Hong Kong solicitors of the 1st plaintiff, by letter dated 30 April 1993, wrote to the Japanese lawyers of the 1st plaintiff informing them that under the Chinese Agreement, the 2nd installment sum of HK$9,000,000.00 was to be used to set off the loans from the Bank of Yokohama and only the balance will be paid into the 1st plaintiff's account. By a further letter dated 5 August 1993, Messrs George Y.C. Mok & Co. informed the 1st plaintiff that the balance of the 2nd installment payment in the sum of HK$1,770,844.71 has been placed in their client's current account and seeking instructions from the 1st plaintiff as to how they should remit that amount of money to the 1st plaintiff; and

(d) By a letter purportedly from the Bank of Yokohama Hong Kong Branch addressed to the 1st plaintiff (but not on letterhead of the bank and not appearing to have been signed) dated 21 February 1995, it is specifically stated therein that the "Date of completion of repayment" of the 1st Loan and the 2nd Loan to be "1993.7.10" and "1993.7.19" respectively. (Although there is mention in that letter of a 3rd loan of US$497,735.54, the drawdown date of which was 19 August 1988, that loan appears to have been fully repaid on 6 November 1989 and in any event nothing turns on that loan in so far as the dispute between the parties is concerned).

The inference which I draw from these documents is that the 2nd installment payment of HK$9,000,000.00 was sufficient to pay off the total debt (including interests) owed by Tenland to the Bank of Yokohama from the 1st and 2nd Loan, and such debt was in fact paid off at the latest by the end of July 1993 with a balance of HK$1,770,844.71 left over which was paid to the 1st plaintiff by Messrs George Y.C. Mok & Co.

35. The next part of the 1st plaintiff's evidence which I find to be unsatisfactory is his evidence of a meeting with Tokuro at his office in Tokyo and their ensuing discussion.

36. Initially, it was stated by the 1st plaintiff in his witness statement dated 20 March 2000 that "several days" before the 5 December 1992 meeting with the 1st defendant in Guangzhou where the Letter of Intention was signed between them, around the end of November 1992, the 1st plaintiff had a meeting with Tokuro in his office in Tokyo when Tokuro told him that he should proceed with the sale of the Shenzhen Properties and suggested to him that the proceeds of such sale should be used first to repay the money which the 1st plaintiff had expended in repaying the loans to Tenland as well as the outstanding loans itself. Tokuro also informed the 1st plaintiff that Tokuro would be happy to receive about 18,000,000 Japanese Yen for his shares in Tenland.

37. That, according to the 1st plaintiff, was how he came to write a confirmation to Tokuro on about 8 February 1993 promising Tokuro 18,000,000 Japanese Yen as being the price for Tokuro's shares in Tenland.

38. When evidence emerged from the Japanese Immigration Department that in fact Tokuro was not in Japan at the end of November 1992 (Tokuro having left Japan on 11 November 1992 and did not return to Japan until 7 February 1993), the 1st plaintiff changed his evidence when in the witness box to say that he now believed that meeting with Tokuro in his Tokyo office to have taken place in October 1992 instead of at the end of November.

39. Even granted that the 1st plaintiff may have made a genuine mistake as to the date of that meeting with Tokuro (although initially the 1st plaintiff did say that it was "several days" before the 5 December meeting with the 1st defendant in Guangzhou), what I find difficult to believe with that evidence of the 1st plaintiff is that in October, well over a month before the 1st plaintiff was introduced to the 1st defendant, and therefore obviously before anyone including the 1st plaintiff knew that there was a buyer for the Shenzhen Properties or for that matter the amount of the purchase price or sale proceeds that the Outgoing Shareholders could obtain from such sale, Tokuro would mention to him, out of the blue, that he would be happy to receive 18,000,000 Japanese Yen for his shareholding in Tenland.

40. The evidence of that entire discussion between the 1st plaintiff and Tokuro, if it took place in October 1992, just seem to be completely out of context at the time that it is said to have taken place.

41. When I then look at the cross examination of the 1st plaintiff on this matter, there appears to be even more discrepancies in his evidence, for under cross examination the 1st plaintiff says that it was he, the 1st plaintiff, who suggested the figure of 18,000,000 Japanese Yen to Tokuro at their meeting in the 1st plaintiff's Tokyo office (as opposed to what was stated in his witness statement that Tokuro said he would be happy to receive about 18,000,000 Japanese Yen). The 1st plaintiff went on to explain in cross examination that when he suggested that figure of 18,000,000 Japanese Yen, he had in mind that the Shenzhen Properties might fetch something like HK$30,000,000.00. On that basis plus the fact that Tokuro well knew of the debt owed by Tenland, Tokuro was very happy to receive 18,000,000 Japanese Yen for his shares in Tenland.

42. A further inconsistency in the evidence of the 1st plaintiff is that while in his oral evidence given from the witness box, the 1st plaintiff said that Tokuro asked the 1st plaintiff to make payment directly to him whereas in his witness statement, the 1st plaintiff was asked by Tokuro to discuss with the 4th defendant as to how the money should be paid.

43. Looking at all the evidence, I have the greatest doubt as to whether such a meeting and conversation ever took place between the 1st plaintiff and Tokuro and if there was such a meeting, whether the conversation took the course that the 1st plaintiff says it did. I have come to this conclusion fully aware of the fact that the only other party to such a meeting and/or conversation, namely Tokuro, passed away at a time before the Writ in these proceedings were issued and therefore cannot give any evidence to either support or contradict what actually happened.

44. I do however accept the evidence of the 1st plaintiff that the Japanese Agreement came about in the way he says it did as I shall be elaborating further on this when I deal with the evidence of the 4th defendant. I also note that it was the 1st plaintiff's evidence (in his witness statement at paragraph 23) that the 4th defendant requested him strongly at the time of their meeting that he should not disclose the figure of HK$4,220,000.00 to Tokuro.

45. I also note that in the witness box the 1st plaintiff admitted that throughout the entire time, he had never spoken to the 3rd defendant at all.

46. Turning now to deal with the 3rd defendant who was called as a witness for the defence. From seeing her give evidence in the witness box and from her demeanour, I formed the view that she, being a permanent housewife, it is hardly surprising that she is not familiar with or experienced in business affairs. When giving evidence, she gave the outlook of being a very timid and soft-spoken person. With such a disposition I would not be surprised that the 3rd defendant is most likely totally submissive and obedient to her husband the 4th defendant. She gave her evidence in Mandarin.

47. I accept the following parts of the evidence given by the 3rd defendant :

(a) She was brought into being a shareholder and director of Tenland by Tokuro and had invested a total amount of HK$375,000.00 into Tenland for which she obtained 375,000 shares of Tenland, the same amount of investment which Tokuro had made. The money for her investment in Tenland had come from the family savings of herself and her husband, the 4th defendant;

(b) She had taken no part in the running of Tenland despite being a director but had been kept informed of the goings on of Tenland by Tokuro;

(c) She had never even spoken to the 1st plaintiff at all;

(d) She had given general authority to her husband, the 4th defendant to exercise her rights as a director in the affairs of Tenland up to the time of the disposal of her shares under the Chinese Agreement;

(e) She had never given any authority to the 4th defendant to agree to or sign the Japanese Agreement on her behalf;

(f) She (and for that matter also Tokuro) had not given any authority to the 1st plaintiff to enter the Chinese Agreement on her behalf when it was entered into on 13 January 1993 however both she and Tokuro had later ratified that by each giving a Power of Attorney to the 1st plaintiff on or about 8 February 1993; and

(g) Despite repeated requests to the 1st plaintiff, she (and again for that matter Tokuro) had not been made aware of the contents of the Chinese Agreement by the 1st plaintiff or anyone else until a copy of it was finally shown to her and Tokuro in early December 1994.

48. I do not, however, accept her evidence that she knew nothing about the intended or proposed sale of the Tenland shares of the Outgoing Shareholders until she saw a copy of the Chinese Agreement on 1 December 1994 when it was supplied to her and Tokuro by the 1st plaintiff.

49. There is evidence before me that the 4th defendant signed, possibly as a witness, the 1991 Agreements.

50. In the circumstances, the 4th defendant had actual knowledge of such an agreement whereby the Outgoing Shareholders were disposing of their shareholdings in Tenland in exchange for the Shenzhen Properties and was thereafter possibly looking for a buyer in respect of the Shenzhen Properties. I do not accept that could have been done behind the backs of Tokuro and the 3rd defendant by the 1st plaintiff, yet done with the full knowledge of the 4th defendant.

51. On balance it seems more likely that both Tokuro and the 3rd defendant knew and had agreed with the other Outgoing Shareholders to sell off their shareholdings in Tenland since early 1991 subject to finding a buyer for the Shenzhen Properties.

52. In coming to this conclusion on this aspect of the case, I have taken into account the fact that when the 3rd defendant was being cross examined late in the afternoon on the 3rd day of the hearing, she had admitted that Tokuro had spoken to her about selling off their shares in Tenland with reference to the agreement of the 12 March 1991 between the 1st plaintiff and Yau. But on the morning of the following day after the adjournment overnight, she changed her evidence given previously to say that she had misunderstood the interpreter the day before and in fact neither Tokuro nor the 4th defendant had ever spoken to her about the sale of the shares. However, she was not able to say what had caused her to realize on the following morning that she had misunderstood the interpreter's question the day before. She also denied that she had been discussing her evidence with anyone during the overnight adjournment.

53. From the totality of her evidence, I was left with the distinct impression that she was at pains to leave her husband, the 4th defendant, out of the picture and distance him from all the dealings in dispute as much as she could and without implicating him in the least. This of course led to the ridiculous situation that while she admitted that her investment in Tenland came from family savings of herself and the 4th defendant (who was the sole income earner in the family) and although the 4th defendant was very much involved with the 1st plaintiff (interpreting for the 1st plaintiff from Chinese to Japanese and vice versa) and the affairs of Tenland, the 3rd defendant was nevertheless denying that the 4th defendant was looking after her interests in Tenland and denying that the 4th defendant had ever spoken to her about the affairs of Tenland. Instead according to her, her only source of information about the affairs of Tenland came from Tokuro.

54. I find that evidence difficult to believe and most likely that evidence was given by her with a view to assist the 4th defendant's case, and most likely given at the 4th defendant's instigation or suggestion.

55. I come now to deal with the evidence given by the 4th defendant.

56. Central to his case and his evidence was how the Japanese memorandum of the 5th December 1992 came into existence. I have no hesitation in totally rejecting his evidence that the Japanese memorandum has nothing to do with the sale of the Tenland shares by Tokuro and the 3rd defendant, but was a private agreement between him and the 1st plaintiff and related to the payment to him by the 1st plaintiff fees for his services rendered to the 1st plaintiff as well as commission for his introducing business to the 1st plaintiff, for the following reasons :

(a) The Japanese memorandum was entered into immediately following the Letter of Intention between the 1st plaintiff and the 1st defendant;

(b) The Japanese memorandum starts off with the words "In relation to the resale of Tenland Company Limited, we have agreed and hereby mutually confirm as follows";

(c) "Tim Yick Company Limited" mentioned in the Japanese memorandum is the same "Team Yick Limited" mentioned in the Letter of Intention. (I accept that the difference in name is due to the translation and that the name in Chinese characters on both documents are the same);

(d) The two amounts both of HK$15,000,000.00 mentioned in the Japanese memorandum conform with the 3rd and 4th installment payments as mentioned in the Letter of Intention with the time of payment being some time after the payment of each of the HK$15,000,000.00 by the 1st defendant; and

(e) The 4th defendant admitted to have written out the Japanese memorandum at the dictation of the 1st plaintiff despite the fact that he, the 4th defendant, was not insisting upon anything being put down in writing and signed, but that the promise to pay the 4th defendant this amount was all one sided from the 1st plaintiff.

57. The same criticism that has been made of the 3rd defendant's evidence can also be made of the 4th defendant. In trying to distance himself from the affairs of Tenland, the 4th defendant attempted in his evidence to create a distorted picture that he had never spoken to his wife, the 3rd defendant about the goings on in relation to Tenland or for that matter anything relating to Tenland. The excuse he gave in his evidence for not doing so was that the 3rd defendant was not on good terms with the 1st plaintiff because the 1st plaintiff looked down on the 3rd defendant. For that reason, even though he knew of the fact that the 1st plaintiff had entered into the 1991 Agreements in March and August 1991 respectively with Yau and in which the 1st plaintiff purports to represent both Tokuro and the 3rd defendant in such transaction, he had chosen not to mention this matter to his wife the 3rd defendant rather than risk upsetting his wife by mentioning the 1st plaintiff to her. I find that explanation unreasonable, convoluted and devoid of reality.

58. Moreover, I do not accept his evidence that in December 1994, Tokuro and the 3rd defendant revoked their powers of attorney given to the 1st plaintiff in February 1993 because they came to learn from the copy of the Chinese Agreement sent to them by the 1st plaintiff that the 1st plaintiff had signed the Chinese Agreement as the lawful representative of Tokuro and the 3rd defendant.

59. That explanation does not hold water because as early as February 1993, both Tokuro and the 3rd defendant were prepared to ratify what had been done by the 1st plaintiff when he signed the Chinese Agreement on their behalf. Looking at the contents of the two letters both dated 16 December 1994 written by Tokuro and the 3rd defendant respectively to the 1st plaintiff informing him of their revocation of the powers of attorney given by them to the 1st plaintiff, it is clear to me that the reason for their revoking their respective powers of attorney given to the 1st plaintiff was due to the fact that they had not received any payment for the sale of their shares up till December 1994 when such payment ought to have been effected in August 1993 and early 1994 if all had proceeded according to what was agreed between the parties. Needless to say those payments to Tokuro and the 3rd defendant never materialized because the last two installment payments for the balance of the sale proceeds for the Shenzhen Properties never came from the 1st defendant.

60. A further possible reason which I cannot overlook is that it was only in December 1994, when the copy of the Chinese Agreement was made available to Tokuro and the 3rd defendant that they became aware for the first time the actual amount of the sale price which was to be paid by the 1st defendant for the Tenland shares of the Outgoing Shareholders.

Findings of facts

61. From the above assessment of the evidence, I make the following findings of facts :

(a) Since early 1991, the Outgoing Shareholders intended to and most likely agreed to dispose of their shareholdings in Tenland and the 1st plaintiff was authorized by them to negotiate with Yau to take over their shares in Tenland resulting in the 1991 Agreements;

(b) Thereafter the 1st plaintiff, possibly with some assistance from the 4th defendant, was looking for a buyer in respect of the Shenzhen Properties;

(c) The 1st defendant was introduced to the 1st plaintiff by the 4th defendant on 5 December 1992 in the China Hotel in Guangzhou as a possible buyer and following negotiations the Letter of Intention was signed between them;

(d) Immediately thereafter, the 4th defendant took it upon himself to enter into the Japanese Agreement with the 1st plaintiff intending for the total amount of HK$4,220,000.00 stated therein to be the share of the sale proceeds for Tokuro and the 3rd defendant at the same time asking the 1st plaintiff not to mention that amount of HK$4,220,000.00 to Tokuro. The Japanese memorandum was then written out and signed by them as evidence of the Japanese Agreement;

(e) The 4th defendant had no authority from Tokuro or the 3rd defendant to enter into the Japanese Agreement with the 1st plaintiff;

(f) Tokuro and most likely the 3rd defendant were not told of the total sale price to the 1st defendant of the Shenzhen Properties, neither by the 1st plaintiff nor by the 4th defendant until a copy of the Chinese Agreement was supplied to them by the 1st plaintiff in December 1994 after repeated requests by them;

(g) The Chinese Agreement was entered into on 13th January 1993;

(h) Powers of Attorney was given by Tokuro and the 3rd defendant to the 1st plaintiff in which both of them ratified what had already been done by the 1st plaintiff on their behalf in entering into the Chinese Agreement;

(i) The 1st and 2nd installments paid by the 1st defendant under the Chinese Agreement was used to pay off the debt owed by Tenland to the Bank of Yokohama and which was in fact paid off some time in July 1993 with a balance left over of HK$1,770,844.71 which was paid to the 1st plaintiff;

(j) Apart from the debt owed to the Bank of Yokohama, Tenland had no other debts for which the Outgoing Creditors had to be responsible under the Chinese Agreement; and

(k) No part of the 2nd and 3rd installments totaling HK$30,000,000.00 was ever paid by the 1st defendant under the Chinese Agreement;

Conclusion

62. In so far as the plaintiffs' claim against the 2nd and 3rd defendants are concerned, on the facts as I have found above, there was no actual authority given by Tokuro or by the 3rd defendant to the 4th defendant to act on their behalf in entering into the Japanese Agreement.

63. In so far as apparent authority goes, there is no evidence from the 1st plaintiff that either Tokuro or the 3rd defendant have in any way held out the 4th defendant as having such authority. In the case of Tokuro I have rejected the evidence of the 1st plaintiff that there was a meeting and discussion between them in the 1st plaintiff's Tokyo office as alleged by him. In the case of the 3rd defendant, it is the evidence of both the 1st plaintiff and the 3rd defendant, and which I accept, that they had never even spoken to each other. The fact that the 3rd defendant may have authorized the 4th defendant to represent her as a director on the Board of Tenland, does not in my view, permit the 1st plaintiff to assume or conclude that the 3rd defendant has thereby authorized the 4th defendant to deal with her shareholding in Tenland. Such authority given to the 4th defendant to represent her as a director of Tenland is given in her capacity as a director and is quite different from giving him authority to deal with her interests in Tenland as a shareholder.

64. In the circumstances, the plaintiffs fail in their claim against the 2nd and 3rd defendants.

65. As for the counterclaim by the 2nd and 3rd defendants against the plaintiffs, it follows from the above findings that the 2nd and 3rd defendants are entitled to the following declarations :

(a) That the Japanese Agreement is not binding upon either the 2nd or the 3rd defendant;

(b) That the plaintiffs are entitled to no more than 53.85% of the sale price from the 1st defendant under the Chinese Agreement after deducting the amount of the loans repaid to the Bank of Yokohama; and

(c) That the plaintiffs have no claim to 46.15% of the sale price from the 1st defendant under the Chinese Agreement after deducting the amount of the loans repaid to the Bank of Yokohama.

66. As for the plaintiff's claim against the 4th defendant, upon the facts as found by me, there was necessarily an implied warranty by the 4th defendant to the 1st plaintiff that he had the authority of Tokuro and the 3rd defendant to enter into the Japanese Agreement on their behalf. In entering into that Japanese Agreement, the 1st plaintiff quite obviously relied upon such implied warranty of the 4th defendant. I conclude therefore that the 4th defendant was clearly in breach of such implied warranty.

67. In so far as damages for breach of warranty of authority against the 4th defendant are concerned, I decline to make any adjudication of that in the present proceedings because it is as yet unknown what if any part of the outstanding HK$30,000,000.00 may be recoverable from the 1st defendant in the bankruptcy proceedings. Until that is known, it would be futile to attempt to make any determination on damages. In that respect I shall grant the plaintiff liberty to apply for such assessment.

68. It follows also that the counterclaim by the 4th defendant against the plaintiffs would be dismissed.

Costs

69. There will be the following costs order nisi :

(a) The plaintiffs to pay the costs of the 2nd and 3rd defendants in defending this action and on their counterclaim;

(b) The 4th defendant to pay the plaintiff's costs of :

(i) The plaintiffs' claim against the 4th defendant;

(ii) Defending the 4th defendant's counterclaim against them; and

(iii) Reimbursing the plaintiffs for the costs which the plaintiffs are ordered to pay to the 2nd and 3rd defendants in (a) above.

Further directions

70. I have been informed by counsel for the respective parties that both the plaintiffs and the defendants have been ordered to pay security for costs in these proceedings and have done so either by bonds or bank guarantees.

71. I shall grant leave to the parties to apply for such order which they may seek to be made in relation to the security which they have paid into Court.