FORTUNE ASSET DEVELOPMENT LTD v. DE MONSA INVESTMENTS LTD

CACV 270/2010
CACV 271/2010 &272/2010

CACV 270/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 270 OF 2010

(ON APPEAL FROM HCA NO. 2723 OF 2008)

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BETWEEN

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(Heard together)

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REASONS FOR JUDGMENT

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Hon Tang VP:

Introduction

1.  At the end of the hearing, we dismissed the Defendants' appeals, with reasons to be handed down, and reserved our decision on the Respondents' application that costs should be awarded on an indemnity basis. 

Background

2.  Lauw Siang Liong (alias Amir Soemedi) ("Lauw Senior") is a self-made man.  He was born in May 1924.  Having made his fortune in Indonesia where his business included steel, banking and real estate, he has lived in Hong Kong for over 20 years.  During such time, he was an active investor in real estate in Hong Kong through private companies which he co-owned with his son Lauw Ming (alias Liu Ming) ("Lauw Junior"). These companies include De Monsa Investments Limited ("De Monsa") and Treble & Triple Limited ("Treble").  They were part of the so-called De Monsa Group[1].

3.  These appeals concern three real estate transactions which took place between 18 October 2007 and 8 January 2008.  The relevant provisional agreements, were dated 18 October 2007, 7 December 2007 and 8 January 2008 respectively, and covered a period of just under three months.  However, when measured from the first provisional agreement dated 18 October 2007 to the last S & P Agreement dated 2 July 2008, we are concerned with a period of almost 9 months.  The evidence is that during this period, indeed, at least until April 2009, Lauw Senior was in sole control of the De Monsa Group.

4.  Completion did not take place in any of these transactions and they became the subject of proceedings which have led to these appeals.  The details are:

5.  The Plaintiffs in these proceedings claimed damages against the relevant purchaser.  Midland has also sued for commission in respect of the 1^st transaction.

6.  The Defendants have denied liability, essentially, on the ground that Lauw Senior who signed the provisional agreements[4] on the company's behalf lacked the mental capacity required to enter into a contract in that he did not understand the true nature and meaning of the transactions that he had entered into for the Defendants.  The Defendants' case is that Lauw Senior was suffering from dementia.

7.  On the critical issue whether Lauw Senior had the mental capacity required to enter into a contract Reyes J explained:

"50. At common law, there is 'no fixed standard of mental capacity' required to enter into a contract. Instead, '[w]hat is required in relation to each particular matter or piece of business transacted, is that the party in question should have an understanding of the general nature of what he is doing'. See Chitty on Contracts (30th ed.), para. 8-069.

51. I regard A1[5] as requiring me to decide whether, when entering into any particular contract for the purchase of property, Lauw Senior understood the nature of the obligation being incurred. A1 asks me to determine whether, by reason of dementia, Lauw Senior was incapable of appreciating the nature of a contract. An answer to A1 hinges on a finding by me that at any material time Lauw Senior was so incapacitated mentally as to be unable to understand the contractual obligation that he was apparently undertaking.

52. I stress that my task is to decide whether Lauw Senior was suffering from dementia during the material period (that is, October 2007 to July 2008). This involves a retrospective evaluation. Even on a premise that Lauw Senior has been suffering from dementia since (say) April 2009, I must determine with regard to the available evidence (including the opinions of Prof. Mak and Dr. Tsang) whether on the balance of probability Lauw Senior was demented when he entered into contracts on 18 October 2007, 7 December 2007 and 8 January 2008 such that he could not understand what he was doing.

53. In answering A1, I bear in mind the insight of Kekewich J in Birkin v. Wing (1890) 63 LT (NS) 80 (at 82) to the follow effect: '[I]f it is a mere question of selling a particular property for a particular sum of money, or purchasing a particular property for a particular sum of money on certain conditions, the [mental] capacity required is not, at least necessarily, so great as that required in a testamentary disposition of any complication'. Not much is required by way of mental capacity to understand the binding nature of a contract."

8.  Reyes J rejected the defence and ordered the Defendants to pay damages to the vendors, as well as the commissions to Midland in respect of the 1^st transaction. 

Trial

9.  At trial, factual witnesses gave evidence on Lauw Senior's condition which covered this period of almost 9 months, including:

(i) Lauw Junior (DW3),

(ii) Law Wai (DW1) the general manager of De Monsa,

(iii) Ho Kwai Fong Liza (DW2) who worked for The Trading Ltd, a member of the De Monsa Group,

(iv) Estate Agents

- DW4 Wong Hoi-yin (Centaline)

- DW5 Cheung Lee-ching Fiona (Centaline)

- DW6 Henry Lam (Midland)

- DW7 Lau Fan-yin (Midland)

10.  There were also medical records of the doctors who had treated Lauw Senior during this period, for example, Dr Norman Chan[6] who had seen Lauw Senior for no less than 28 occasions between May 2007 and March 2009.  

11.  There was also expert evidence on the question whether Lauw Senior was suffering from dementia at the relevant time or at all. Prof Lieh-Mak gave oral evidence on behalf of the Plaintiffs, and Dr Jenny Tsang, the Defendants[7]. 

12.  As the learned judge explained, Prof Lieh-Mak and Dr Jenny Tsang:

"69. … took diametrically opposed views as to whether he had dementia over the same period.

70. Dr. Tsang was adamant[8] that Lauw Senior was demented at the material time. Her diagnosis was one of vascular dementia due to multiple etiologies (causes), especially head trauma (Lauw Senior’s fall) and chronic subdural haematoma. In coming to her conclusion, Dr. Tsang says that she relied on the totality of available evidence, including witness statements filed in each action and medical records relating to Lauw Senior’s condition produced by various doctors and specialists both before and after April 2009.

71. Prof. Mak, on the other hand, concluded that Lauw Senior was not suffering from dementia during the relevant period. In her view, Lauw Senior’s forgetfulness 'may be due to benign senile forgetfulness'. So Lauw Senior’s 'lapses in memory ... are a nuisance but never a problem'. In other words, Lauw Senior being over 80, there is nothing surprising about his being forgetful. His memory may not be good, but that does not mean he is demented."

Head Trauma

13.  I believe it was Dr Jenny Tsang's evidence that the underlying cause of Lauw Senior's dementia was "vascular dementia and dementia due to head trauma"[9].

14.  It appeared that Lauw Senior had had a bad fall in March or April 2007.  He was admitted into the Hong Kong Sanatorium & Hospital on 28 July 2007, initially under the care of Dr Norman Chan and Dr Godwin Leung (a cardiologist)[10]. 

15.  On 28 July 2007, after his admission into hospital, Dr Clarence Leung, a specialist in neurosurgery, became involved.  Dr Clarence Leung performed a burr hole drainage of the left chronic subdural haematoma on the morning of 31 July 2007.  By 3 August 2007, in Dr Clarence Leung's view, Lauw Senior was "neurosurgically fit for discharge" and in Dr Norman Chan's view, Lauw Senior was "… alert and orientated".  On 5 August 2007, Lauw Senior was discharged from hospital "and he remained alert and oriented without focal neurological deficit"[11]. 

Dr Clarence Leung's letters[12]

16.  Dr Clarence Leung had also written several letters which recorded Lauw Senior's condition after his discharge from hospital, the first of which is dated 9 August 2007 where he said:

"… It is now one week post-op and you have been doing very well without any focal neurological deficits. There may be some memory impairment, but I do believe this should improve over the next few weeks. … I am really pleased to see you doing so well after your surgery. …"

17.  In the next letter dated 5 September 2007 he said:

"… You are [sic] six weeks progress CT of brain showed good brain re-expansion with all the intracranial air being reabsorbed already. There is only a residual subdural collection with the thickness of about 1cm.

Now you are fit for flying.

I would like to see you in about eight weeks time with another progress CT to see whether those subdural collections have re-absorbed by then.

I am glad to see that you are doing so well after your operation. …"

18.  The letter of 5 September 2007 was written with the benefit of a CT scan report addressed to Dr Clarence Leung dated 3 September 2007 which stated under comment:

"Extensive left subdural collection consistent with chronic subdural haematoma is noted."

19.  And under findings:

"There is a left subdural collection which is of mixed density, slightly higher than grey matter. This shows a maximum depth of about 13mm. The collection extends over the left frontal and parietal regions."

20.  The next letter (17 October 2007) reads:

"… Your progress CT scan of your brain show there is a small collection over the left subdural space and I do believe that is secondary to your previous compression and also relatively atrophic brain. I don't think this would cause any problems in the long run therefore I would like to repeat a CT scan in about six months time and I will see you after the scan.

I am really glad to see you doing so well after the operation and I hope you will still enjoy your busy working schedule as before."

21.  There is a CT scan report of the same date 17 October 2007 which reads under comment:

"There is a left subdural haematoma. This is of subacute to chronic age. Minimal mass effect to underlying brain. Maximum depth of 9mm is noted.

The underlying brain shows age related involution with moderate degree of prominence of the ventricular system and the sulcal spaces.

There is no intracranial tumour seen. No other intracranial haemorrhage.

22.  The last letter in the series is dated 9 April 2008 where Dr Clarence Leung wrote:

"… On repeat of your CT scan I am glad to tell you that your brain has re-expanded and there is no residual blood clot over the subdural space. You have been working normally as usual but you have complained of some memory problem which probably secondary to aging. I am glad to see you doing so well after the operation."

23.  I note the CT scan of 9 April 2008, which was presumably obtained for the consultation with Dr Clarence Leung, stated under findings:

"No intracranial haemorrhage is seen. No evidence of subdural haematoma is now identified."

24.  And under comment:

"3. No evidence of subdural collection.

4. No evidence of intracranial haemorrhage."

Dr Clarence Leung's Report of 5 June 2008

25.  It is also noteworthy that Dr Clarence Leung provided an Expert Report and Assessment of Lauw Senior dated 5 June 2008 to show that Lauw Senior was fit to give evidence in legal proceedings in Singapore.  There, Dr Clarence Leung stated:

"His condition remains the same throughout the follow up period at the clinic (9 August 2007, 5 September 2007, 17 October 2007 and 9 April 2008) and subsequent CT scans (3 August 2007, 17 October 2007 and 9 April 2008) showed complete resolution of his left subdural haematoma. … His memory was severely impaired at presentation on the 28 July 2007 but I believe his impairment of memory was probably established several weeks or months ago since the presence of the subdural haematoma."

26.  As Professor Lieh-Mak explained:

"A. A subdural haematoma, if it's of sufficient size, will impact on the brain, displace the brain and cause sort of cognitive and other sort of neurological impairment. Now, the analogy to that, and when you remove the pressure, then the brain springs back and everything is back to normal. The analogy is if somebody were to squeeze my neck and apply pressure, I would choke, I would try to gasp and I might lose consciousness, but the moment that pressure from my neck is removed, I regain consciousness and I assume my normal function. I think that's the analogy I can use for subdural, my Lord."[13]

27.  The trial in Singapore took place in July and August 2008.[14]  The proceedings were complicated.  The plaintiff company was Over & Over Ltd, a Hong Kong company jointly owned by Lauw Senior and Lauw Junior.  They complained of, amongst other things, minority oppression, in connection with a joint venture company.  The claim by Over & Over was dismissed.

28.  Both Lauw Senior and Lauw Junior gave evidence. In relation to Lauw Senior's evidence, the learned judge said at para 7:

"However, I did not give much weight to LSL's testimony since there was evidence that he had a failing memory and could not remember much of what had happened in the past."

29.  Mr Ho said that Lauw Senior was put forward as capable of giving evidence because he was needed as a witness in the Singaporean proceeding.  But Dr Clarence Leung must have thought that Lauw Senior was capable of giving evidence.  Presumably, Lauw Junior too.  And so too, lawyers acting on their behalf in Singapore.  Anyway, Woo Bih Li J's comments do not show that Lauw Senior was suffering from dementia.  We do not have a transcript of his evidence which might show it was obvious that he was suffering from dementia or not. 

The transactions

30.  It was suggested that Lauw Senior was acting out of character because he was buying when the market was peaking and that he had been taken advantage of by brokers who were dealing with him.  It appears that between 9 March 2007 and 8 September 2008, Lauw Senior had entered into a total of 151 transactions at a cost of some $7 billion.  There is a chart which shows the number of properties purchased by Treble between January 1993 and January 2009 on a monthly basis.  The chart shows that Lauw Senior was most active in the market, as the market was peaking before the Asian Financial Crisis of 1997 when in one month, he had bought a total of 15 properties.  Another spike in purchase took place between 2007 and 2008, where the monthly number of properties purchased by him also apparently peaked at 15.  So the fact that Lauw Senior was most active when the market was peaking does not support a case of dementia.  Nor that he was being taken advantage of.  There was also no evidence that the prices paid were above market.

31.  In Appendix 6 to the consolidated skeleton argument for the Plaintiffs[15] helpful extracts from newspaper and magazine articles and reports relating to Lauw Senior[16] were provided.  For example, in the Next Magazine (Issue 874) dated 7 December 2006 (before Lauw Senior's fall), under the caption of "The legend of Steel King, purchases of 4.5 billion".  Lauw Senior was quoted as saying:

"I love Hong Kong, so I would make purchases whenever I have money, I keep no record of how much I have spent!"

32.  When asked about his art of speculation, he was reported to have say he only had one:

"when I feel like to, I will purchase as many properties as possible."

"the payment of a mortgage can be used for tax reduction, a business should try to save!"

33.  Then he apparently said in jest:

"'I was deceived by the real estate agent!' however, he has not hesitated and continued to make purchases as he has sound financial capacity, he says frankly that: 'all my money came from Indonesia and money is sent to me regularly.'"

34.  The next article about him in the Next magazine is dated 25 October 2007 (after his discharge from hospital), where the caption was "The rise of the property market – users snatching properties – to protect self interest".  He was quoted as saying:

"I don't dance nowadays because I need to watch the property market and buy more. Like Bel-Air, which has a sea view and a club house and is also a new development, there is not much supply on Hong Kong side, therefore must buy. Sigh! Because of the effect of wealth, there is too much money in this world, so money keeps flowing into Hong Kong. I want to buy more properties, even South Horizons has gone up in prices and I can no longer buy it."

35.  Lauw Senior also figured in an article in South China Morning Post of 4 June 2008 under the caption of "Luxury market sentiment improves.  Two high-end projects see strong demand while house on Peak fetches record price".  It reads:

"Lauw Siang Liong, the chairman of the fund, said the developer had offered discounts and delayed the completion date of the transaction, which was an attractive proposition to an investor.

'I am looking for at least 20 per cent growth on acquisition prices in the short term. I believe prices will continue to rise in the next few months and we will meet our sales target before the end of the year,' Mr. Lauw said."

36.  I have included some of the other extracts below because they give a good indication of Lauw Senior's condition. 

21.06.08 iMoney Magazine: 'De Monsa: Tight Supply will Increase Rental'	Þ   Lauw Siang Liong refused to comment on recent reports that banks have tightened De Monsa's loans. He says there is no shortage of funds. Þ   Lauw Siang Liong points out that, in an environment where the stock market is trading within a narrow range, the property market will show a similar trend. Þ   He expects the rise in property prices will slow down in the latter half of the year, but the increase in rental prices will continue, because the supply is tight. From an investment point of view, his units in Celestial Heights can be either sold or leased. Rental is expected to increase. Any sale will depend on the price offered. Þ   Having acquired so many properties in this quiet market, does he not fear a fall in property prices? He responded, 'The gradual cooling down of property prices is not a bad thing. In a long term it will still be bright. It is expected that in the latter half of the year property prices in Hong Kong still have about 5% increase, the increase is moderate... property prices cannot rise substantially. A large increase will result in a big fall.' Þ   When asked about the effects of the possible increase in interest rates in the USA on property prices, he said, 'Increase in interest rates in the USA will be problematic. But in the short term the increase will not be too great. I believe the increase this year will be at most 0.5%. The accumulated increase for the coming year will not reach 1 %. Even if Hong Kong were to follow suit, the increase will not be large, it will not have great impact on property prices.'	148 148 149 149 149
03.07.08 Next Magazine (Issue 956): 'Interest rates rise of a sudden.  Speculators run short of funds.  Property Market forced to diminish.'	Þ   Last Monday, Lau went to his office to work at his Wing On office as usual and when the reporters came up ask questions, at first Lau smiled and said: 'What brings all of you here?' When the reporter asked him about whether the Celestial was being 'rescinded', he said nervously: 'No! No! Do not listen to people talk nonsense.' Þ   This week a reporter called Lauw again and this time he acknowledged that the property market was not too optimistic at the moment: 'I don't have a good or bad feeling about it, I'm just aiming for a stable development in the future.'	160 161
07.07.08 Sing Tao Daily	Þ   The eighty-odd-year-old Mr. Lauw Siang Liong attended an interview with us. We asked him about this rumour. He spoke to us placidly in fluent Putonghua, 'this was simply not the case.' He pointed out that he only gave up the purchase of 605 of Bank of America Tower, but he still held all other properties, including the 36 flats of Celestial Heights at Ho Man Tin; his assistant had already instructed their lawyers in an afternoon last week to issue a letter of demand to pursue against the magazine, being the source of the rumour. He further pointed out that the rise of interest rate had not affected the property market. 'It is now something over 2% per annum; [property purchase] is therefore not expensive at all,' said Mr. Lauw. He predicted that after a short term adjustment, the property market would recover in September.	165
09.07.08 Eastweek Magazine 'High prices but no market. Prices of central district commercial buildings reach peak'	Þ   When asked by reporters about such incidents, Mr. Lauw Siang Liong, the person-in-charge of De Monsa ('Uncle Lauw') said: 'I am very much optimistic about commercial buildings in Central.' However, when asked about why he still had to forego deposits if he was optimistic, he immediately became silent and left the scene quickly.	177
16.07.08 Eastweek Magazine 'Property prices under pressure. Major investors quickly changing strategies.'	Þ   Last Friday, reporters found Mr. Lauw Siang Liong ('Uncle Lauw'), the helmsman of De Monsa, who is over 80 years old. Although he was reluctant to talk about the rumours, he insisted that he was still optimistic about offices in central district. He further clarified that he had only abandoned the purchase of Room 605 of Bank of America Tower and was still holding all other properties including the 36 flats at Celestial Heights. He further indicated that he was still optimistic about the property market, 'The increase of interest rates did not affect the property market. Interest rates are currently 2% something, not expensive at all.' He expected the property market to improve in September this year, 'Even though inflation is currently still strong, the property market is undergoing temporary adjustment, but demand for properties is still here.'	185
02.08.08 Wen Wei Po '9 Queen's Road Central. Reaching new high of $18,220 thousand per square foot'	Þ   The Indonesian Investor De Monsa said frankly that as the completion date would be due for properties that were purchased earlier on, the group would only selectively complete some relevant purchase and sale with those unique and rare projects in priority, so that the opportunity to purchase quality properties would not be missed.	198
02.08.08 Sing Tao Daily 'Implementation of completion of 9 Queen's Road Central by De Monsa'	Þ   Lauw Siang Liong (see photo on the left), the chairman of De Monsa indicated when receiving the inquiries from us that loans were obtained from the purchase of 8th Floor, 9 Queen's Road Central on 31st July, he said, 'the whole floor are partitioned into different units, we are now obtaining return of 6%, I believe that the price of the first class building is not going to collapse as the owners are not willing to sell.' He anticipates that the price will stabilize within this year. De Monsa had also made purchase of 36 units of Celestial Heights earlier on, he pointed out yesterday: 'mortgage will be obtained for Celestial Heights, the properties are still under construction and the completion date is yet to be reached. It's only a rumour that I had failed to complete!'	200- 201
06.11.08 Next Magazine (Issue 974) 'Slaughter of speculators. Cheap acquisition of Severn 8 in one go Ma Wing Shing (馬榮成) causing the real estate market to drop	Þ   'We had already cancelled the transaction and had our deposit forfeited. 10% of the property price (i.e. $24 million) was the deposit and was lost!' Lauw Siang Liong admitted blankly that the purchase timing was not good: 'I didn't buy it at a good timing, it was too expensive! I didn't view the property before purchase and the market collapsed after the purchase, I felt regretted immediately when I took out the money.' Þ   He admitted blankly that he had not thought of delaying the completion, he would rather make a decision promptly: 'even it is delayed, it is only for a short-term, one day after the next goes by, I am not optimistic about the market afterwards, and dare not buy any more properties. I will not buy the property if I don't want it, and business is should be as simple as that.'	211 211
19.11.08 Sing Tao Daily: 'De Monsa: No Forgoing of Deposit on Celestial Heights'	Þ   However, there have been new developments as the person in charge of the said corporation, Lauw Siang Liong (劉常仁), stated that 'There is still a duration of time until the Completion date, at present (we) are observing the market, we are not going to forgo the deposit', showing a degree of confidence in the future market. Þ   Lauw Siang Liong: There's still a long time til the Completion date Lauw Siang Liong told the newspaper that he is still observing for the property market; but the development of Hong Kong's property market was healthy and thus he's optimistic about the property market's long term development; and he will not give up the Celestial Heights transaction at present because 'there is still a long time till the Completion'; it reflects that the corporation are inclined to complete transactions for luxury properties which have a lot of potential. Þ   Furthermore, as to the market speculations that (De Monsa) would put its 25 rental properties in Hong Kong Parkview (陽明山莊) and Pacific View (浪琴園) in the Southern District of Hong Kong on sale at a price below the market price, Lauw admitted there were indeed offers from purchasers to buy its rental properties including Hong Kong Parkview. However, Lauw said ambiguously that 'the time was not right', there was no intention to sell at present, and frankly said '1 have confidence in the Hong Kong Property Market'.	219 220 220- 221
13.05.09 [date wrongly translated as '24.05.09'] Eastweek Magazine 'Grabbing land, scooping up new properties.  Speculators playing in buoyant property market'	Þ   This reporter phoned 84-year old helmsman of the fund, 'Uncle Lauw', Lauw Siang Liong to seek confirmation. He promptly denied it, 'No, I didn't buy anything, I only went to take a look. Too expensive!' Þ   However, this does not seem to have phased Uncle Lauw, who still calmly goes to work and is completely open about the defaults, 'There have been defaults. I'm a businessman through and through. When I see a drop in price, how can I still buy? For example, when I buy it is $20,000 and if now it's $10,000, surely I'll default.' As to other properties he purchased last year but did not default on, he admits that he bought them expensive, 'They were expensive, but I don't mind. I'll continue collecting the rent.' He says that he has not considered selling them, I've always had incoming, no outgoing.' Although he has defaulted on several occasions, Uncle Lauw remains very optimistic about the market in future, 'As interest rates are too low, there is no interest to be made on money in the bank, so property prices will not drop.' He stated that once property prices recover, he will re-enter the market. As to why he has not made any purchases recently, he says there is nothing to buy at the moment, and even if he was thinking of buying, he was in no position to do so. However, when this reporter pointed out that there were numerous properties on the market, he changed tack saying that one could not buy properties one at a time, one had to buy a large number in one fell swoop. At present there were not many properties up for sale. As to people criticizing him as being 'ruined', he suddenly turned a stony face and retorted, saying 'No way.' And he repeatedly stressed, 'When I buy something I have money to pay, and if I don't' have enough I talk to the bank. At present the banks are very relaxed in (rules). I have the initial installments'. However, when I asked him how much money he had at hand, he let out an 'Ah ya!' and refused to answer. Þ   'If he's a friend, I'll buy' A broker once said that Uncle Lauw was easy to convince, tell him to buy and he'll buy. He laughed saying, 'I'm making money. If a friend asks me to help, I'll say, 'OK, OK, I'll buy it from you.' Haha! No other alternative. That's friendship!' And what if a broker came to see him to try to get him to buy? Without hesitation he answered, 'Why, sure! If he's a good friend, I'll buy.' Cheung Kong's Celestial Heights will soon be available for occupancy. The market expects that Uncle Lauw will default on all of his 36 units, but, as if suffering from amnesia, he insisted that he had not made any such purchases, 'They haven't even been built, (can uncompleted flats be purchased?) I only buy existing properties.' He further said that he hadn't put up any money. However, someone in the know stated that Uncle Lauw's lawyers and he had started discussing default.	237 237- 238 238- 239
06.07.09 Sing Tao Daily 'De Monsa's Lau Sheung Yan (劉常仁): Do not overly obtain loan'	Þ   The person in charge of the group, Lauw Siang Liong, when interviewed by us mentioned about the experience during the financial turmoil, had emphasized that: 'beware, beware at any time, do not overly obtain loan!' Þ   As to the rumour of financial difficulty, Lauw Siang Liong mildly replied: 'during the financial turmoil, the lending institutions had some misunderstandings on us. They believed that when the property price plunged, the properties under the name of the group could not be sold even the group decided to do so. The group was too heavily in debt, therefore I had them visited the steel plant in Indonesia and thereby settling the matter.' Þ   He indicated, the largest private steel plants in Indonesia are owned by the group (the Master Steel, Pulo Gadung Steel and Pangeran karang Murni) and have 3000 workers, primarily producing raw iron (原鐵) as construction material, widely used by countries around the world: 'the income of the plant is currently very steady, with a monthly profit of US$10,000,000.' Þ   The property market before and after the financial turmoil is of such a big difference, so as the attitude of the banks, he continued. 'There is a bank taking the initiative to approach us currently and offered to loan us US$50,000,000. I, however, declined it.' Lauw indicated, he is now in the age of 82 and has plenty of experience, the low tide of turmoil was nothing. 'I had a hard time when I was young, I worried that I might not get a job and had once been unemployed.' He was born into a wealthy family, and ought not have to worry about working, he replied: 'I just do not want to use my parent's money.' Þ   Experiencing the rise and fall of the market, Mr. Lauw concluded his experience and said: 'beware, beware at any time, do not overly obtain loan!' He emphasized: 'when I have $100,000,000 on hand, I will only borrow $10,000,000 from the bank, beware of the proportion.' He also indicated that with the low interest rate nowadays, there is certain attractiveness should the return from investing properties is higher than its interest. However, that does not mean that he will make any purchase casually: 'we will make purchase in a restrained way, and will only consider if there is a 7% return rate.' Þ   Regarding the property transactions that were cancelled by the group during the financial turmoil, he completely denied: 'I had neither bought nor failed to complete those transactions leading to forfeiture of deposits.' There were sources indicated that he had purchased some properties while he had injured his head due to a fall previously. He replied, while he was travelling to the airport seeing off a few months ago, he had a fall near the airport and injured his head and resulted in his admission to the hospital for more than 10 days and causing a concave-shape injury in the left side of his head. 'However, I am now okay and am very energetic.' Whereas according to a market source, he had been making random purchases of properties in expensive prices during his injured period, he replied: 'they were indeed a bit expensive, but they were not very expensive'. Þ   Regarding the anticipatory future direction, Mr. Lauw has not disclosed any major plans. According to his acquaintance, Mr. Tong Gwan Ming, the chairman of Foh Tat (科達): 'Mr. Lauw is planning to finance $1,000,000,000 for purchases this year!' But Lauw Siang Liong refused to admit (灑手拎頭) saying: 'He was bragging (吹牛)! He was bragging! It was not true!'	246 246 246- 247 247 247- 248 248 248

37.  These extracts give no indication that Lauw Senior was suffering from dementia or that he lacked the mental capacity to understand the transactions that he had entered into.  I have read the full reports on which the extracts were based and can say that there is no hint in any of these reports that the reporters who had interviewed Lauw Senior thought that there was anything wrong with Lauw Senior's mental capacity.

38.  Moreover, it should also be noted that between September 2007 and January 2008, Lauw Senior was able to negotiate the following profitable sub-sales and re-sales:

Date	Property	Consideration	Profit
20.09.07	Shun Tak Centre units	$49.50m	$6.46m
01.10.07	Silver Fortune Plaza 6/F	$32m	$2.98m in 3 months
03.10.07	East Point Centre floor	$119m	$2.20m
22.10.07	Bel-Air on the Peak	$29.80m	$3.20m
22.10.07	Bel-Air on the Peak car park	$0.20m	$0.10m
25.10.07	Silver Fortune Plaza offices 801-807	$35.176m	$7.076m in 3 months
29.10.07	Cameron Commercial Centre units	$14.80m	$2.49m
07.11.07	East Point Centre units	$19.46m	$2.96m
28.11.07	Far East Finance Centre units	$90m	$18m
03.12.07	Silver Fortune Plaza 20-23/F	$186,432,800	$22,864,400 in 19 days
04.12.07	Peninsula Centre units	$25.20m	$5.60m
05.12.07	New East Ocean Centre	$38.22m	$6.37m
05.12.07	Queen's Road Central floor	$226m	$33.92m in 1 month 17 days
07.12.07	Mandarin Plaza units	$29.80m	$6.30m
11.12.07	Shun Tak Centre units	$54.98m	$14.41m
29.12.07	Admiralty Centre floor	$132.80m	$30m
03.01.08	Shun Tak Centre unit	$18.78m	$2.09m
10.01.08	Bel-Air on the Peak unit	$33.20m	$7.86m
10.01.08	Bel-Air on the Peak carpark	$0.80m	$0.70m

39.  These transactions supported the view that Lauw Senior was selective in his default.

40.  One of these transactions, which was entered into on 3 December 2007, related to the 20-23/F of Silver Fortune Plaza, which Lauw Senior had purchased from Fortune Asset[17] for $163,568,400, which he resold after 19 days for $186,432,800 at a profit of $22,864,400; completion took place on 15 May 2008. 

41.  There was also Lauw Senior's conduct in the purchase of the 11 – 15/F Silver Fortune Plaza from Fortune Asset.  There, after much negotiations between the parties in or about July 2008, a formal agreement was signed.  The effect of the formal agreement has been stated in para 4 above. The detail of the negotiation in July 2008 can be found in the witness statement of Raymond Hu Liang Ming given on behalf of Fortune Asset.  After noting the S & P Agreement on 20–23/F was completed on 15 May 2008, so far as the 11-15/F are concerned, he said in para 31 of his statement:

"Then, just a few days before the scheduled completion of the sale and purchase of the 11^th to 15^th floors, on or about 24 or 25 June 2008, Cheung and Wong visited me at my office to relay a message from De Monsa that it had not been able to borrow money to pay for the balance of the purchase price and that it wished to have the date of completion date extended. I told Cheung and Wong that De Monsa's solicitors should contact Fortune Asset's solicitors and have the matter sorted out through the solicitors."

42.  Then Mr Hu went on to confirm from both information obtained from his business associates in the banking sectors as well as company searches that the De Monsa group had obtained banking facilities from the Wing Hang Bank to the extent of $125,000,000 in September 2008, and $832,000,000 from the Standard Chartered Bank (Hong Kong) Limited in August 2008, secured by a portfolio of properties in De Monsa's name. 

43.  That witness statement had been affirmed by Mr Hu in his evidence.  He was cross-examined by Mr Charles Sussex SC then acting for the Defendants purchasers.  It does not appear that his evidence regarding the banking facilities which the De Monsa group had obtained was challenged. 

44.  Dr Jenny Tsang's evidence was that a lay person who had had a chance to interact with Lauw Senior for, say, 5 to 10 minutes, would have noticed forgetfulness of recent events, or some memory impairment in him[18].  Dr Jenny Tsang had no satisfactory explanation how it was possible that Dr Norman Chan who had seen Lauw Senior for no less than 28 occasions between May 2007 and March 2009, apparently had not observed any symptom of dementia.  Nor Dr Clarence Leung who had seen Lauw Senior on 5 occasions between August 2007 and August 2008, and who was able, as late as June 2008, to provide an expert report in support of the view that Lauw Senior had the mental capacity to give evidence in court.  The Defendants' case was that Lauw Senior was the sole person in charge of the De Monsa Group at the time.  There is no suggestion that it was not Lauw Senior who gave instructions to solicitors and negotiated the bank loans.  There was no evidence that Lauw Senior's supposed dementia was noticed by solicitors, clerks, estate agents and banks with whom Lauw Senior dealt.  It is inconceivable that if his condition was as described on behalf of the Defendants, Lauw Senior could have negotiated the loans with the banks without them realizing that Lauw Senior was suffering from dementia. 

45.  Also, the estate agents' evidence, which the learned judge accepted,was that:

"88. … there was nothing remarkable about Lauw Senior’s state of mind after he returned to work following brain surgery. He may have been forgetful, but he had been forgetful long before his fall and surgery. …" para. 88 of the judgment

46.  The learned judge, who had formed a favourable opinion of the agents, accepted their evidence.  Mr Ambrose Ho, SC (who appeared for the 1^st Defendants) suggested that the learned judge might have forgotten that these witnesses could not be regarded as impartial.  I agree with Mr Anderson Chow, SC (who appeared for Midland), that the learned judge could not have been unaware of the estate agents' interests in these matters.  This was one of the points expressly raised by counsel for Treble (not Mr Ho) in his cross-examination of each and every estate agent who gave evidence at the trial.  There was also the unchallenged evidence of the estate agents about the detailed and careful way in which Lauw Senior would go about his business transactions, eg by asking for detailed information about the properties, by inspecting the properties and considering their neighbourhoods, by negotiating over price and asking for longer completion dates, by seeking commission rebates, by refusing to act on some of the recommendations urged on him, by selling properties in stages to achieve targeted profits.

47.  The evidence of Mr Law and Ms Liza Ho for the Defendants on Lauw Senior's condition had been rejected by the learned judge. I would not go into his reasons for rejecting their evidence, save to say, that I agree with the learned judge's conclusion. 

48.  As for the evidence of Lauw Junior, it is sufficient for the present purpose to note that his evidence was that he would visit Hong Kong once every 2 or 3 months, normally for not more than 24 hours, and then he would see his father on those occasions.  In his witness statement, he said:

"14. In early 2009, I was shocked to learn from Mr Law Wai that my father did not recover from his operations in 2007 and that he has been suffering from severe dementia. I was equally shocked that my father had apparently instructed staff not to report to me his dealings to me.

15. It was not until April 2009 when I came to realize the severity of his mental illness through the medical reports filed herein." [Emphasis added]

49.  In other words he had not noticed anything wrong with Lauw Senior.  That was something which he was shocked to learn from Mr Law Wai[19].

Expert Evidence

50.  The learned trial judge clearly preferred the evidence of Prof Lieh-Mak to the evidence of Dr Jenny Tsang.

51.  Reyes J preferred Prof Lieh-Mak's professional opinion (that Lauw Senior was not so suffering dementia) over Dr Jenny Tsang's, because (as set out in the consolidated skeleton argument for the Plaintiffs):

"5.2.1 Dr Tsang placed significant weight on the statements of Law Wai and Liza Ho, which statements were 'far too vague and unreliable to constitute cogent evidence of Lauw Senior's state of mind at the material times' (§77 [Core1/18-19]); and Liza Ho's evidence was 'peripheral' and without context (§§78-80 [Core1/19]), Law Wai's evidence was 'contradictory, speculative and unreliable' (§§81-86 [Core1/19-21]). (In fact, Reyes J went on to reject both Law Wai's and Liza Ho's evidence as having any probative value on the issue of Lauw Senior's state of mind: §104 [Core1/25]). Dr Tsang should have, but failed to, approach this evidence with a healthy skepticism (§86 [Core1/21]);

5.2.2. Dr Tsang failed to attach any weight to the evidence from the estate agents involved, and made unjustified assumptions in relation to their dealings with Lauw Senior without any valid basis (§§87-89 [Core1/21-22]);

5.2.3. Dr Tsang discounted the evidential value of the exchange between Lauw Senior and Prof Mak on the buying and selling of property [Core2/322-326/§3.12] (which Ps submit is the most cogent evidence that Lauw Senior did have the necessary understanding), and gave a 'pedantic and artificial gloss' to Lauw Senior's responses when cross examined (§90 [Core1/22]);

5.2.4. Dr Tsang took evidence far too literally and narrowly, without considering the same as a whole and in context (§91 [Core1/22]);

5.2.5. Dr Tsang gave the impression under cross examination that she was acting 'more as an advocate' than an independent expert (§§93-95 [Core1/22-23]);

5.2.6. Overall, Prof Mak's evidence was more balanced. Reyes J rejected Dr Tsang's as being 'partisan and unreliable' (§105 [Core1/25]).

5.3. In any event, it is clear that, quite apart from the experts' opinions, Reyes J formed the view, on the available evidence, that Lauw Senior was capable of understanding what he was doing when entering into the Agreements.

5.3.1. Reyes J found that following Lauw Senior's operation in 07.07 his mental condition improved prior to his return to work in 08.07 (§§38-39 & 98 [Core1/10 & 24]).

5.3.2. Reyes J found it significant that despite Lauw Senior having been seen on numerous occasions in 2007 and 2008 by Dr Norman Chan and Dr Clarence Leung, neither of them considered it necessary to refer him to be treated for mental illness (§99 [Core1/24]).

5.3.3. As stated in §5.2.1 above, Reyes J did not give weight to either Law Wai or Liza Ho from whom the primary evidence as to Lauw Senior's alleged mental incapacity came.

5.3.4. Reyes J held that the fact that Lauw Senior appeared to have known how to drive hard bargains, make occasional handsome profits, and deal with solicitors and estate agents indicated to him that Lauw Senior was capable of understanding the nature of a contract at the material times (§82 [Core1/19-20]).

5.3.5. Reyes J considered that Lauw Senior's continuing language dexterity and his ability to describe in detail what happens in a sale and purchase contract and what happens if one does not go through with the transaction as involving a number of mental functions, including the employment of logical reasoning (§95 [Core1/23]) .

5.3.6. In coming to his view, Reyes J also relied on the fact that Lauw Senior's son, Lauw Ming ('Lauw Junior'), considered that Lauw Senior was fit to give evidence to the Singapore Court in the latter half of 2008, and that Dr Clarence Leung had been asked to (and did) provide a medical certificate in support of Lauw Senior's ability to do so (§§100-102 [Core1/24-25]).

5.3.7. Reyes J accepted the evidence of the estate agents from Midland and Centaline who testified as to the absence of any signs of dementia on Lauw Senior's part (§104 [Core1/25]).

Reyes' J's findings on these matters, save as to his acceptance of the estate agents' evidence, are not the subject of challenge.

5.4. Reyes J went on to hold that in any event, there was no evidence of dementia (on Lauw Senior's part) between 10.07 and 01.08 (during which the provisional Agreements were signed) so that the estate agents had neither actual nor constructive knowledge thereof which could be imputed to Ps (§113 [Core1/27])."

52.  With respect, it seems to me that the evidence that Lauw Senior was not suffering from dementia and that, more relevantly, he had the mental capacity to enter into the transactions is overwhelming.  I have read the evidence of both Professor Lieh-Mak and Dr Jenny Tsang with care. With respect, even without the contemporaneous evidence, I would have preferred the evidence of Professor Lieh-Mak.  More pertinently, with respect, there is no basis upon which I can disagree with the learned judge's conclusion.

53.  Mr Ho submitted that as the learned judge has said (and is common ground) that:

"55. The applicable criteria for diagnosing dementia are those in DSM-IV-TR ('Diagnostic and Statistical Manual of Mental Disorders Fourth Edition Text Revision').

56. DSM-IV-TR states (at p.148): 'The essential feature of a dementia is the development of multiple cognitive deficits that include memory impairment and at least one of the following cognitive disturbances: aphasia, apraxia, agnosia, or a disturbance in executive functioning'. 'Aphasia' is the 'deterioration of language function'. 'Apraxia' means an 'impaired ability to execute motor activities despite intact motor abilities, sensory function, and comprehension of the required task'. 'Agnosia' is the 'failure to recognise or identify objects despite intact sensory function'. Executive functioning involves 'the ability to think abstractly and to plan, initiate, sequence, monitor, and stop complex behaviour'."

54.  Mr Ho submitted that there was evidence that there was memory impairment and there was at least one of the cognitive disturbances so a case of dementia had been made out.  He pointed to eg Dr Norman Chan's Qualigenics Diabetes Centre Progress Sheet:

8 August 2007- "V. poor memory"

25 February 2008 – "Poor memory"

26 February 2008 "Admits to forgetting to take oral drugs frequently"

10 March 2008 - "Poor memory"

55.  But Dr Norman Chan was not purporting to make any diagnosis of dementia.  Moreover, it is highly significant that Dr Norman Chan, who saw Lauw Senior on no less than 28 occasions between May 2007 and March 2009 gave no indication that he had noticed Lauw Senior's supposed dementia, nor suggested Lauw Senior should obtain specialist or any care in relation to such dementia.  Nor did Dr Clarence Leung, who saw Lauw Senior on at least 5 occasions between August 2007 and August 2008. 

56.  As Prof Lieh-Mak said, from Dr Clarence Leung's notes she extracted:

"… that Dr. Leung, who is the treating neurosurgeon, did not find any increase in the symptoms or deterioration, or the presence of the symptoms of dementia, and that's why he didn't do anything further to treat Mr. Lauw Senior."

57.  Moreover, it is inconceivable that Dr Clarence Leung would have felt able to provide a report to show that Lauw Senior was fit to give evidence in Singapore had he detected symptoms of dementia.

Indemnity Costs

58.  In Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 Li CJ said that the discretion to order indemnity costs "is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."  Para 17.

59.  I have no doubt that this is an appropriate case for indemnity costs.  I have taken pains to show that the evidence that Lauw Senior did not lack the requisite mental capacity was overwhelming.

60.  I would order costs on an indemnity basis in favour of all the Respondents.

Hon Fok JA:

61.  I have had the benefit of reading in draft the judgment of Tang VP.  I respectfully agree with the reasons he has set out for dismissing the appeals.

62.  The Judge's conclusion on issue A1, namely that Lauw Senior was not suffering from dementia when he signed the relevant sale and purchase agreements, was a finding of fact based on his assessment of the expert evidence.  This turned largely on his assessment of the credibility and weight of the parties' respective experts.  This court, differently constituted, has held that, challenges to expert evidence are to be treated on the same basis as an appeal on findings of fact: Au Yeung Miu Sim v Tsang Kwong Wai [2004] 2 HKLRD 187 at §16.  Thus, in order to overturn findings of a first instance tribunal based on expert evidence, it is necessary for an appellant to meet the high threshold that applies to challenges of fact: Ansar Mohammad v Global Legend Transportation Ltd [2011] 2 HKLRD 985 at §22(1). Quite apart from the Judge's preference for Professor Lieh Mak's evidence over that of Dr Tsang, the Judge also based his conclusion on a substantial body of other evidence demonstrating that Lauw Senior was capable of understanding what he was doing when entering into the relevant agreements.  There is, therefore, simply no basis for overturning the Judge's careful finding that Lauw Senior was not suffering from dementia at the relevant time.  So far as liability is concerned, that finding rendered moot the other issues that were argued at trial and our conclusion that it should be upheld is sufficient to dispose of these appeals.

63.  So far as costs are concerned, I also agree with Tang VP that this is an appropriate case to award indemnity costs in favour of the respondents in view of the overwhelming evidence, which is set out and referred to in his judgment, that Lauw Senior did not lack the mental capacity necessary to enter into the relevant agreements.

Hon Wright J:

64.  I have had the benefit of reading the draft judgment of Tang VP and the additional observations by Fok JA.  I respectfully agree with both.  This is a matter in which it is appropriate to order indemnity costs in favour of the respondents.  There is nothing further which I wish to add.