KWAI TAK MING v. K.S. CAPITAL ONE LTD AND OTHERS

HCA 679/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 679 OF 2012

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J U D G M E N T

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INTRODUCTION

1. The plaintiff commenced this action in April 2012 against the three defendants, claiming essentially that:

(a)   a preliminary sale and purchase agreement dated 7 March 2012 (“the provisional S&P agreement”);

(b)  a sale and purchase agreement dated 23 March 2012 (“the S&P agreement”),

ought to be set aside (collectively “the said agreements”).  The grounds put forth in support of the claim are that the said agreements:

(1)  were procured by misrepresentation;

(2)  were procured by undue influence;

(3)  were unconscionable dealings;

(4)  resulted from the defendants’ breach of fiduciary duties.

The above is denied by the defendants, who counterclaim for the specific performance of the S&P agreement, and damages (in addition or in lieu).

2. The said agreements concern the sale by the plaintiff of his one-third share in a shop premise in Shek Wu Hui, Sheung Shui for $5 million (the shop premise is “the Shop” and the plaintiff’s share is “the suit property”).

BACKGROUND

3. A summary of the undisputed background will help the comprehension of the issues in this action.

4. The plaintiff is about 60 years old, and undoubtedly a heavy gambler (whether he claims his huge debts (relative to his income) originated from stock, currency or other “investments”, or pure gambling, is unimportant (at least for the purpose of his state of finance)).  Together with his siblings, he seems to be fortunate enough to have inherited the shop from his parents. 

5. The plaintiff’s debts made him a frequent customer of commercial lenders.  He came to be acquainted with the 3^rddefendant (“Hui”) in mid-2009, who was then working with a finance company.  Since then to about 2012, they became friends (or, at the very least, the plaintiff seemed to repose quite some trust in Hui regarding matters about his personal finance). From time to time, they would either talk over the telephone and meet or dine together.  (See also para 26 below)

6. In late 2009, the plaintiff was working as a security guard.  By 2012, his monthly income ranged between about $8,000 and $9,500.  Also, the suit property was mortgaged to a finance company to obtain a loan of about $3.6 million (“the finance company mortgage”).

7. Hui joined the above-said finance company in mid 2005 and he met the 2^nd defendant (“Ng”) there.  The two later left that company joined a finance consultancy company, Keystone Financial Consultancy Ltd (“Keystone”) in August 2009.  One of the bosses of Keystone is a Mr Leung (“Leung”).

8. The plaintiff’s financial problem continued (and perhaps worsened) in the meantime.  Besides entering into other financing (that is, borrowing) arrangements with other financial establishments, the plaintiff came into contact with Hui in about 2010 and 2012:

(a)   in early 2010, Hui gave advice to the plaintiff the details of which Hui cannot remember;

(b)  in December 2010, Hui helped the plaintiff to obtain a 2^nd charge of a residential unit owned by the plaintiff;

(c)   in 2012, the plaintiff and Hui conversed over the telephone about the plaintiff’s financial problem.

The last-mentioned contact resulted in further meetings with Hui (and, after having been introduced by Hui, also Ng and Leung) (see also para 20(a) below).

9. Two meetings were mentioned in some detail during trial:

(1)  a meeting in mid-February 2012 at the UCC restaurant in Shatin (“the UCC meeting”);

(2)  a dinner meeting in the latter half of February 2012 at the Kowloon Cricket Club (“the KCC meeting”).

(collectively “the said meetings”).

10. Throughout his contacts with Hui, Ng and Leung, the plaintiff has always been firm regarding keeping his financial problems unknown to his siblings (his elder sister indicated once that she would disown the plaintiff if he still indulged in his debts).  It is also said that the plaintiff’s siblings relied on the Shop’s rents as a source of income.

11. The said meetings resulted in the execution of the said agreements (respectively on 7 and 23 March 2012).  What transpired during the said meetings (and hence the history leading to the said agreements) and the true nature of the said agreements are the main factual disputes herein.  They will be discussed under the heading below.

12. The gist of the terms of the said agreements is:

(a)   the plaintiff was the vendor and the 1^st defendant (“KS Capital”) was the purchaser;

(b)  the price was $5 million, of which (1) $100,000 deposit was to be paid at the time of the provisional S&P agreement, (2) $120,000 was to be paid by 2 April 2012, and (3) $4.78 million was to be paid upon completion;

(c)   completion by 30 April 2012;

(d)  the rental income after completion should be the purchaser’s.

13. KS Capital is the corporate vehicle being used to hold the suit property for the other two defendants (as well as other co-investors).

14. Quite a few contemporaneous documents have been included in the trial bundles.  In particular, the following documents, the authenticity of which is undisputed, may be relevant to the resolution of the factual disputes in this action:

(1)  e-mails from Hui to Standard Chartered Bank (“SCB”) dated 21 February 2012, and from SCB to Hui on 22 February 2012 (collectively “the SCB e-mails”) (concerning the valuation of the Shop).  The SCB e-mails were sent after the KCC meeting;

(2)  the plaintiff’s personal credit report dated 28 February 2012 (“the PCR”).  This was also provided after the KCC meeting;

(3)  correspondence between Keystone and a surveyor firm (“ASA”) from 5 March 2012 to 6 March 2012 (concerning the valuation of the Shop);

(4)  the provisional S&P agreement (dated 7 March 2012);

(5)  ASA’s valuation report dated 16 March 2012;

(6)  two Chinese notes dated 23 March 2012 signed by the plaintiff (collectively “the plaintiff’s notes”);

(7)  the S&P agreement (dated 23 March 2012).

WITNESSES’ CREDIBILITY AND FINDINGS OF FACT

15. As stated above, there are several major factual disputes in this action.  A proper resolution of these disputes will require an assessment of the witnesses’ credibility (and reliability).  The ultimate factual issue being: whether the said agreements truly reflect the nature of the transaction between the contracting parties:

(a)   the plaintiff’s case is that they do not; the said agreements were entered into as a result of the misrepresentations of Ng and Hui (and Leung) to the effect they were merely in the nature of a secured “bridging” loan (pending the agreement of the other co-owners (that is, the plaintiff’s siblings) to obtain a proper bank mortgage) to enable the plaintiff to clear his personal (gambling) loans;

(b)  the defence case is that they do, and the alleged misrepresentation is denied.

16. The approach I adopted in earlier decisions when assessing the credibility is repeated:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) Whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para 28) and Yu Ming Investment Ltd. v. Peng Ru Chuan, Richard, HCA 814/2002 (para. 13))”

(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12).  The same approach will be adopted in this action.

17. I have also borne in mind the approach disapproved by the decision in The Popi M [1985] 1 WLR 948 (see also Ide v ATB Sales Ltd [2008] EWCA Civ 424 (28 April 2008)), para 1 to 6; Datec Electronic Holdings Ltd and Others v UPS Ltd [2007] 1 WLR 1325, para 46 to 50).  The impermissible approach was described in the ATB Sales judgment as follows:

“ … a trial judge was not compelled to choose between two theories, where the evidence was unsatisfactory … it was not possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, must be the cause … the concept of proof on a balance of probabilities had to be applied with common sense … ” (para 3 thereof).

18. This heading is discussed under different sub-headings below only because the principal factual disputes revolve around several important events.  The need to consider the witnesses’ totality credibility from a wider perspective has not been overlooked (see also para 82 below).

19. The following factual witnesses testified at trial:

(1)  the plaintiff;

(2)  Leung;

(3)  Hui;

(4)  Ng.

(a)  The UCC meeting

20. It is common ground that:

(a)   before the meeting, the plaintiff telephoned Hui and told him of his serious financial problem (a debt of about $3.6 million was mentioned).  The two agreed to meet that evening (see also para 8(c) above);

(b)  the meeting took place in mid-February 2012;

(c)   by then, the plaintiff’s relatively meager monthly (as a security guard) was insufficient to sustain the monthly repayments of his debts.

21. The plaintiff’s case is essentially this: Hui asked him to bring along the debt documents for Hui to consider.  During the meeting, after having learnt of the plaintiff’s problem, Hui suggested two plans.

22. Hui’s first plan was that the plaintiff was to use the suit property and another property as security to obtain funds at cheaper interest rate (to pay off the existing loans).  His alternative plan was that the plaintiff could try to obtain private funding to pay off the most onerous loans first.  In this connection, Hui said his bosses in Keystone could form a company to hold the suit property for about a year during which time the plaintiff could persuade his family members to “buy it back”.  The “buy-back” could be effected by all the co-owners obtaining a bank mortgage of the Shop.

23. The defence case, on the other hand, is this: after telling Hui the plaintiff’s financial problem (which Hui considered to be caused mainly by the (exorbitant) finance company mortgage of the suit property), the plaintiff asked Hui to help him as a friend.  Hui therefore asked the plaintiff to provide him with more information such as the Shop’s plan and the PCR.

24. That apart, none of the matters the plaintiff asserted (above) had been mentioned by Hui.  Hui says that there was too little information for him to make any useful comments.  The defence also denies that Keystone or any of the other defendants acted as the plaintiff’s agent.

25. Hui also testified that it is the practice of Keystone not to take a client’s words on their own, but to examine the documentary records to verify the client’s story before considering possible solutions for the client’s financial problem(s).

26. As the parties agree, by the UCC meeting, the plaintiff and Hui were close friends.  The impression one gets from the totality of the testimony of the plaintiff and Hui is that, before their relationship turned bad, the plaintiff felt grateful for Hui’s help with solving his earlier financial problems, and has given gifts to Hui to show his appreciation (see also para 5 above).

27. With that in mind, irrespective of Keystone’s practice (and bearing in mind, during the KCC meeting, Hui did not regard himself as a staff of Keystone (or the plaintiff’s agent)), I find the plaintiff’s case that Hui had offered the several possible solutions during the UCC meeting to be inherently plausible, and accept this part of the plaintiff’s testimony to be truthful and reliable.

28. The defence argues that the documents referred to in para 14(1) and (2) above support its case and discredit that of the plaintiff.  I do not agree.  First, the relationship between Hui and the plaintiff was not commercial (let alone formal) (see para 5 and 26 above).

29. Secondly, the statement in Hui’s e-mail dated 21 February 2012 to SCB:

“CMV: $30M or above (as much higher valuation as you can reach)”

shows rather that Hui very much had his friend’s (that is, the plaintiff’s) personal interest in mind.  While such request for information from SCB is consistent with a contemplated bank mortgage, it does not exclude the plausibility of the alternative plans mentioned in para 21 and 22 above.

30. Thirdly, it is also important here to note that the documents mentioned in para 14(2) and (3) above were only provided after, not only the UCC meeting, but also the KCC meeting.  None of Hui, Ng or Leung saw the need to postpone the KCC meeting until after these documents were provided.  Further, at the time of the SCB e-mails, the PCR was not yet available; but Hui apparently did not think that this should hamper his approach to SCB.

31. Fourthly, the fact that the UCC meeting in effect led to the KCC meeting (see para 32 below) also supports the finding that the above proposals have in fact been made by Hui.

(b)  The KCC meeting

32. It is common ground:

(1)  after the UCC meeting, Hui realized the magnitude and urgency of the plaintiff’s financial problem;

(2)  Hui arranged the plaintiff to meet Ng to discuss the plaintiff’s financial problem;

(3)  the plaintiff has only met Ng and Leung briefly before the KCC meeting (in 2009);

(4)  the KCC meeting took place in the latter half of February 2012 (on 17 February (a Friday) according to the plaintiff and on 20 February (a Monday) according to the defence).

As stated above, what has been discussed during the KCC meeting, and what the discussion led to, are however in dispute.

33. On the plaintiff’s part, his case is that, after knowing of the plaintiff’s financial problem, Ng and Leung said in effect that a company would be set up to “purchase” the suit property, which could later be “bought back” by the plaintiff and his siblings within a one-year period (in other words, an arrangement in the nature of a one-year “bridging” loan, with the appearance of a “sale”).  Before the one-year period expired, the plaintiff was to persuade his siblings to jointly mortgage the Shop to a bank (to obtain a loan with a much lower interest rate).

34. Ng also told the plaintiff he would face serious financial consequences if he should default in loan repayment (especially of the finance company mortgage).

35. The defence denies the above, contending that they only suggested to the plaintiff the following:

(a)   the plaintiff and his siblings were all to jointly obtain a bank mortgage of the Shop (so that the loan would carry a much lower interest rate);

(b)  if a younger relative could act as a co-borrower, the plaintiff might be able to persuade a bank to grant a loan (i) repayable over a longer period, and (ii) with an even lower interest rate.

Someone at the KCC meeting also suggested the plaintiff to consider selling the suit property to his siblings.

36. The plaintiff steadfastly refused to do any of the above during the KCC meeting.  Instead, he asked Ng, Leung and Hui to help him look for a purchaser of the suit property, to which they intimated that not many people would be interested in buying only a share in a co-owned property.

37. For the reasons given below, I find the plaintiff’s case to be credible and reject the defence case as incredible.

38. Bearing in mind (even on the defence case) the plaintiff’s unyielding stance of not wanting his siblings to know of his debts, it is inherently implausible for him to have proposed selling the suit property to any third party (as the defence now claims).  This is because any such sale would soon be discovered by the plaintiff’s siblings (as has in fact happened with the discovery of the said agreements by his elder sister).

39. Besides the above, the defence in effect says that the KCC meeting was not pre-arranged, nor did it have a specific purpose (other than to better understand the plaintiff’s problem).  Rather, the KCC meeting took place effectively as a coincidence: Hui was concerned about the imminence of the plaintiff’s financial problem, and he wanted Ng to also help think of a solution for the plaintiff.  It just happened that:

(1)  the plaintiff had arranged to meet Hui to provide Hui with further documentary information of his debts (none has in fact been provided at the meeting);

(2)  Ng informed Hui that Ng would be having dinner with Leung at KCC that day;

(3)  Hui and Ng therefore thought it convenient to meet up with the plaintiff that evening.

40. Further, part of the defence case is that it was the plaintiff who mentioned, during the KCC meeting, the idea of selling the suit property to someone (and he asked the defendants if there was any buyer) (for the first time).  In addition, on 28 February 2012, when the plaintiff delivered the PCR to Hui, he expressly asked Hui if the defendants would be interested to buy the suit property.

41. Regarding Keystone’s practice for rendering consultancy services to clients for their financial problems, the defence witnesses all stand by this practice; that is, Keystone’s staff should wait until the clients’ verbal version has been verified by documents before they would begin to deliberate on the matter.  This is because experience shows that the clients’ verbal versions of their indebtedness were (for various reasons) often inaccurate.

42. This practice would have made the KCC meeting (especially the suggestions summarized in para 35 above) rather pointless (assuming the defence case above to be true).  The most important document (according to the defence witnesses), that is, the PCR, was still not obtained (it was only provided on 28 February 2012).  Any discussion about “solving” the plaintiff’s financial problem would thus have been inconsistent with Keystone’s said practice, and in any event premature.

43. Before leaving this sub-heading, a type-written “Authorization Letter” (dated 20 February 2012), which has been signed by the plaintiff (“the authorization letter”), should be mentioned.  It authorized a solicitors firm (“KB Chau & Co”) to approach the Shop’s mortgagee:

(1)  to redeem the Shop’s mortgage;

(2)  to provide the title documents for such purpose.

44. The parties differ as to when the authorization letter was prepared and signed (because they differ as to the date of the KCC meeting), but they are in agreement that:

(a)   it was prepared by Hui at Keystone’s Mongkok office at the end of the KCC meeting, and signed by the plaintiff there;

(b)  the authorization letter was intended for seeking information regarding the precise outstanding loan amount of the financial company mortgage.

45. The authorization letter is equally consistent with either of the parties’ above case:

(1)  it can be consistent with the proposed “buy-back” arrangement summarized in para 15(a) above (Hui, Ng and Leung would need detailed information of the finance company mortgage to finalize the “buy-back” arrangement);

(2)  it can be consistent with the defence case summarized in para 15(b), 25 and 41 above (Hui, Ng and Leung would need detailed information of the finance company mortgage in the unlikely event a willing purchaser of the suit property should appear).

(c)  Contacts between the KCC meeting and the said agreements

46. What happened during this period lasting for about 2 or 3 weeks or so (from about 20 February (according to the defence) or 17 February (according to the plaintiff) to 7 March 2012) is again hotly disputed.  It is, however, common ground that there were frequent telephone contacts between the plaintiff and Hui (in particular) during that time.

47. The plaintiff claims that, by then, he realized that the loan repayment would be due soon (in early March) and felt anxious and desperate.  That, coupled with his trust of Hui, Ng and Leung, made him finally agreed to enter into the “buy back” arrangement they proposed earlier.

48. On the part of the defence, what happened was that the plaintiff telephoned Hui and asked him if Hui and/or Ng (or Hui’s other friends) would be interested in buying the suit property, which could generate a stable rental income.  Hui therefore contacted Ng and, after having conferred about the matter, decided to jointly (together with some of their relatives) purchase the suit property for $5 million (for long-term investment purpose).

49. The joint purchase was finalized among Hui, Ng and Leung by the end of February/beginning of March.  The investment turned out to be funded by them and their close relatives.

50. So as to avoid any later legal challenge against the validity of the purchase (in case the plaintiff should be declared bankrupt), they engaged ASA to prepare a valuation report concerning the fair market value of the suit property (para 14(5) above).

51. Whether the plaintiff’s version summarized in para 15(a) above, or the defence version summarized in para 15(b), 25 and 41 above, should be accepted, cannot properly be resolved without regard to the matters discussed under the sub-headings (a) and (b) above and (d) below (“The UCC meeting”, “The KCC meeting” and “The said agreements”).

52. Having taken those matters into account, I conclude that the plaintiff’s version should be preferred (para 15(a) above).

(d)  The said agreements

53. The plaintiff’s notes (see para 14(6) above) have been signed by the plaintiff on 23 March 2012 (the date of execution of the S&P agreement). Because quite some importance has been placed on these documents, a brief description should be given to help understand why they are considered to be important.  Both parties agree that the plaintiff’s notes were signed before the parties attended at KB Chau & Co to execute the S&P agreement.

54. One document is headed “Acknowledgement” (確認書) which is a most confusing document.  Doing the best one can to make commercial sense out of it, it appears to state that the plaintiff agreed to:

(a)   collect the rent on behalf of KS Capital for the period after completion of the sale (30 April 2012) to July 2013 (when the tenancy expired), a period of some 14 months;

(b)  pay the rent so collected (14 months (and $410,662) in total) to KS Capital by way of a lump sum (apparently by a cheque, which should be a post-dated cheque).

(“the rental collection note”)

55. The other document is headed “Acknowledgement and Authorization” (確認及授權書) and states that the plaintiff has authorized KB Chau & Co to pay out the purchase price in the following manner:

(1)  repay the mortgage loan;

(2)  draw a cheque of $411,000 in the plaintiff’s favour;

(3)  the remaining balance be used to pay off the plaintiff’s other personal debts.

(“the debts repayment note”)

56. These documents are unusual, and are not typically seen in normal conveyancing transactions in Hong Kong.  This is because in an ordinary conveyance of land, the whole legal and beneficial ownership therein will be vested in the purchaser upon completion of the sale, with the result the purchaser (having by then become the beneficial owner) will solely be entitled to collect any rent deriving therefrom.

57. In other words, it is unusual for the parties to a conveyance to agree that the vendor of the land should still collect the rent on behalf of the purchaser deriving therefrom despite the completion of the sale.

58. In relation to the debts repayment note, it is unusual for the plaintiff to acknowledge (to the purchaser) the following:

(a)   how he would dispose of the purchase price;

(b)  specific a sum which was to be paid to him;

(c)   the sum so specified was not a round figure (such as $400,000 or $500,000);

(d)  the sum so specified is not immediately explicable except that it matches the plaintiff’s rental share for the 14 months after completion (save for a few hundred dollars).

59. With the above in mind, in relation to $411,000 (and $410,662) (para 55(2) above (and 54(b) above)), the two documents would only make commercial sense if they are construed to have the following combined effect:

(1)  the said sum was to be paid to the plaintiff in the nature of a loan from KS Capital (despite purporting to be part of the purchase price);

(2)  the said sum was to be repaid to KS Capital by the end of the 14-month post-completion period from the rents to be collected during that period.

With the plaintiff’s financial records, it is understandable for his lender (KS Capital) to require in gist a written acknowledgement that the plaintiff would not use the rent he collected for other purposes.

60. Logically, such a construction would entail construing what appears in writing to be part of the purchase price ($411,000 (para 55(2) above) out of $5 million) as (in truth) being in the nature of a loan, which KS Capital (supposedly the purchaser) would advance to the plaintiff (supposedly the vendor) upon completion of the sale.

61. For a similar reason, this construction would also entail a conclusion that what appears in writing to be an outright sale of the suit property (para 15(b), 25 and 41 above) was (in truth) a more complicated transaction.

62. In the context of this action (which appears in the paragraphs above), the “more complicated transaction” is more probable than not the “buy-back” arrangement which the plaintiff testified to.

63. The term of the debts repayment note summarized at para 55(3) above is also unusual.  A purchaser is seldom interested in whether the vendor would use part of the purchase price to pay off (parts of) the vendor’s personal debts.  This term therefore also supports the above conclusion.

64. Judging from the contents of the witness statements of Hui, Ng and Leung, among them Ng was the one who handled the plaintiff’s notes.  However, Ng only gives a purported explanation to why the rental collection note, but none has been given for the debts repayment note (para 40 and 41 thereof).

65. On the other hand, the plaintiff explains in his witness statement the plaintiff’s notes were in effect intended for the purpose summarized in para 59 above (para 45 and 56 thereof).

66. By reason of the above matters, I find that the plaintiff’s case (summarized in para 15(a) above) is credible, whereas the defence case (summarized in para 15(b), 25 and 41 above) is not.

(e)  Matters affecting overall credibility/reliability

67. The parties’ closing submissions also mention other matters which they submit should be taken into account when assessing the witnesses’ credibility and/or reliability.

68. They have been so taken into account.  These matters include the following:

(a) the plaintiff’s case is inconsistent with his own pleadings;

(b) the plaintiff’s case is inconsistent with the letter before action dated 27 April 2012;

(c) it was the plaintiff’s elder sister who prompted the plaintiff to commence this action;

(d) the plaintiff is highly educated and has long and wide work exposure;

(e) the plaintiff was no stranger to financial arrangements such as personal loans and mortgage loans;

(f) miscellaneous matters such as the plaintiff’s payment of $16,800 in 2010;

(g) the plaintiff’s case puts forth a “buy-back” agreement some of the important terms of which were uncertain (the time period for the buy-back, the price for the buy-back).

69. As a general observation, I do not find them to materially affect the conclusions reached in the sub-headings above.

70. In relation to para 68(a) and (b) above, it is clear these documents were drafted by the plaintiff’s legal advisers.  It is obvious from the discussion during the plaintiff’s opening submissions that his legal advisers appeared to place much more emphasis on causes of action based on undue influence, unconscionable dealings and the defendants’ breach of fiduciary duties (para 1(2) to (4) above) than on misrepresentation (para 1(1) above).

71. The above seemed to be caused by the legal advisers’ misunderstanding of the major difference in nature of the above causes of action:

(1)  on the facts stated in the plaintiff’s witness statement, in essence he “disowns” the said agreements because the defendants misled him into believing the said agreements were intended for purpose A, when in fact they were intended for purpose B (a typical complaint premised on para 1(1) above);

(2)  on the contrary, the causes of action summarized at para 1(2) to (4) above are in gist complaints that, while it was accepted the said agreements correctly represented the transaction which the parties intended, they resulted from the inequitable conduct on the defendants’ part.

72. Such being the case, I do not find it should affect the plaintiff’s credibility or reliability.

73. In relation to para 68(d) and (e) above, while it is true the plaintiff appears to be highly educated and has earlier taken up work involving substantial responsibility, since 2009 he reneged to being a security guard (there was an obscure suggestion it was caused by his stroke in 2008).  Further, he must have been mentally in a rather distressed state at the time.  On the other hand, the defendants were also sophisticated and well versed in dealings involving personal loans, re-financing and the like, having worked in the finance company business for some time before 2012.  This matter is thus by and large neutral.

74. In relation to para 68(g) above, it must be noted that the plaintiff never advances a case that the “buy-back” agreement was a binding contract (and therefore has to establish all the essential terms); instead, his case is only that the defendants have misrepresented the true nature of the said agreements.  Certainty of the terms of the “buy-back” arrangement need not be part of the plaintiff’s case.

75. In relation to para 68(f) above, I find these to be matters which have at most a peripheral importance to the question of credibility and reliability.

76. I have borne in mind para 68(c) above, but find that, for the reasons given above, this is not a case where the plaintiff has concocted a story in order to satisfy his elder sister’s wish, or to escape from his contractual liability.

77. The plaintiff also relies on the price offered by the defendants for the suit property as a ground in support of this action; he contends the defendants deliberately undervalued the suit property.  I have been able to reach a decision without regard to this contention, but will, for completeness, discuss valuation under the next heading.

78. Based on the conclusion reached in relation thereto (see para 88 to 93 below), if it should be necessary to do so, I would find that:

(i)   the valuation of SCB must have been too low.  This is understandable because SCB approached valuation from a mortgagee’s viewpoint. In recent years, it was widely reported by the media that housing prices have unduly risen, and banks have, for various reasons, been cautious in this line of business;

(ii)  ASA’s valuation (at $15 to 20 million) was suspiciously low. ASA has not been called to substantiate their valuation.  The reason given by the defence for obtaining the valuation is also not very satisfactory (see para 50 above).

79. Although the defence witnesses are not put forth as valuation experts, it must be remembered that, in the course of Keystone’s business, they must have come across more than a few transactions involving mortgaging properties to obtain loans.  Also, in this internet age, particulars of conveyancing transactions are easily accessible.  I therefore do not accept their testimony they have no clue as to what the likely worth of the suit property was in February and March 2012.

80. Bearing the above in mind, I find that it was likely the defence witnesses knew that $5 million was an undervalue.

81. Finally, three matters should be mentioned below, so as to show that they have not been overlooked.

82. One, credibility and reliability was not discussed expressly in relation to each of the witnesses (especially the defence witnesses).  But the need to examine their testimony individually has not been ignored.  The discussion above was set out in the manner it now appears only because their testimony is consistent with, and supports, each other.  It would thus appear to be repetitive if their individual credibility/reliability were discussed in turn one by one.

83. The difference in their respective roles in the relevant events has not been forgotten either.  For example:

(a)   relative to Ng and Leung, Hui appears to be the one who has had the closest, and most frequent, contact with the plaintiff before the KCC meeting;

(b)  relative to Hui and Leung, Ng appears to be the one who has had the closest and most frequent, contact with the plaintiff after the KCC meeting;

(c)   relative to Hui and Ng, Leung appears to be the one who has had the least contact with the plaintiff .

84. Two, on the plaintiff’s case, what in truth was a “buy-back” arrangement was (as agreed between him and the defendants) dressed up as a sale and purchase. Assuming the transaction was not discovered by the plaintiff’s elder sister, it is unknown (because the matter has not been explored by either party) if the plaintiff intended to disclose fully and frankly to his siblings the true nature of the transaction, or merely to tell them the suit property had been sold to a third party out of desperation.

85. Three, the defence case is that, in April 2012, the plaintiff informed them he wanted to cancel the transaction (because his elder sister objected to the sale).  Ng was the one who negotiated with the plaintiff, and, after having conferred with the other “partners”, offered to do so for a sum of $1.5 million.

86. When asked during trial about how the sum was arrived at, Ng was not able to provide the particulars save to say that this represented the expected return from the suit property’s rental income and capital appreciation over the next few years.

87. It is noted that a $1.5 million payment for a sum of $5 million (the price stated in the said agreements) can also mean (if the transaction is looked at as a loan) a 30% interest return over principal for a period of about a year (or 14 months). Such return is not uncommonly found in loan agreements of some licensed money lenders.

VALUATION EVIDENCE

88. The parties’ respective valuation experts differ as to their valuation of the suit property:

(1)  the plaintiff’s valuation expert (“Kwan”) valued it at about 13 million (about $46 million for the Shop);

(2)  the defence valuation expert (“F Ng”) valued it at about $7 million (about $32 million for the Shop),

as at March 2012 (the time of the said agreements).  It should be noted F Ng’s valuation has already discounted the suit property by reason of (i) a distressed sale, and (ii) the complications and risks of (and hence a much narrower market for) selling a partial interest in a property.  (I pause to note that either of the above valuations gave a higher value (for the Shop) than that given by SCB or ASA).

89. The main reasons for the above difference in valuation are:

(a)   F Ng considered the sale of the suit property to be a distressed sale;

(b)  different comparables have been considered to be suitable;

(c)   different percentages have been given to enhancement and discount factors;

(d)  different discounts given for the partial ownership.

90. The events which brought about the need for the plaintiff to sell the suit property make the association to a “distressed sale” reasonable.  However, the defence case is that the defendants treated the plaintiff effectively as a friend, and would nonetheless make him a reasonable price offer (but discounted for the partial ownership).  Hence, it is doubtful if the said agreements can properly be regarded as a “distressed sale”.

91. In relation to para 89(b) and (c) above, the main difference is whether it was proper to consider a shop near the Shop (called “Comparable 3” in the valuation reports).  Kwan said it was proper, while F Ng considered that age of the transaction (nearly 2 years before the valuation) rendered it inappropriate.  F Ng also disagrees with the time-adjustment value used by Kwan.

92. The relatively lengthy time lapse between the valuation and the Comparable 3 transaction is no doubt a problem.  However, I agree with Kwan that the comparables used by F Ng did not share similar commercial (or business) characteristics of the locality where the Shop was located, and hence were not appropriate comparables.  In the absence of a more updated (and appropriate) comparable, I would go along the use of Comparable 3.  Perhaps to err in favour of the defence, Kwan’s valuation of the Shop should be given a 10% further reduction (to reflect differences in time-adjustments among the different areas in Hong Kong).  This would reduce the value of the Shop to $41 to 42 million instead (and the value of the suit property to $13 to 14 million instead (before partial ownership discount)).

93. A few words should also be spent on whether the location of a shop already includes the volume of its pedestrian flow (a criticism levied by the defence against Kwan).  I agree with Kwan that there is a valid difference between the two.  The volume of pedestrian flow is purely quantitative, and does not take into account its “quality”.  An extreme example will show the difference: the number of pedestrians during day time of a street in a school area and the same number of pedestrians during the same period of a street in a tourist resort area (even if the quantity of the pedestrian flow of the two areas is the same).  The concept of “location” is therefore widely than sheer quantity.

94. In relation to para 89(d) above, Kwan gave a 15% discount whereas F Ng considered the reduction should be 35%.  As both experts fairly accepted, this aspect lacks academic studies or sufficient market data, and hence is highly subjective.  Trying the best I can, perhaps a 25% discount is proper.  This would further reduce the value of the suit property to somewhere between $9.75 million and $10.5 million.

CONCLUSION

95. An order is made in terms of para (2) and (3) of the prayer for relief.  The counterclaim is dismissed.

OTHER MATTERS

96. In view of the above, it is unnecessary to consider or determine the causes of action summarized in para 1(2) to (4) above.

LEAVE TO AMEND

97. Leave to amend the statement of claim has been given on the first day of the trial.  The brief reasons for granting leave were:

(1)  para 70 to 71 above are repeated;

(2)  despite sub-para (1) above, the plaintiff’s case (especially the factual case) remained the same (no new evidence has been adduced);

(3)  an adjournment had been given to the defence for consideration to be given to the new pleading;

(4)  it was therefore a case where the likelihood of prejudice to the plaintiff far exceeded that to the defence if leave to amend were refused.

98. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

99. The parties agree:

(1)  costs should follow the event;

(2)  the trial be certified to be suitable for court attendance by 2 counsel.

100. There will accordingly be a costs order that the costs of this action be paid by the defendants to the plaintiff, to be taxed if not agreed, with certificate for 2 counsel.