NEW WORLD DEVELOPMENT CO LTD AND ANOTHER v. SUN HUNG KAI SECURITIES LTD

cacv 205/2004 & CACV 210/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal nos. 205 and 210 of 2004

(on appeal from HCA No. 3191 of 1999
Consolidated with HCA NO. 21961 of 1998)

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HCA 3191/1999

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AND

HCA 21961/1998

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(HCA 3191/1999 to be consolidated with HCA 21961/1998 pursuant
to the order made by Mr Justice Findlay dated 22 July 1999
with HCA 3191/1999 being the leading case)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an appeal from a judgment of Deputy High Court Judge To given on 1 April 2004.  The plaintiffs had brought this action in respect of an oral agreement made on behalf of the defendant to take up half the 1^st plaintiff’s interest in a joint venture enterprise relating to the construction of two hotels in Kuala Lumpur and those hotels would be operated under the joint venture after construction.  The defendant had counterclaimed on the basis that if, which the defendant denied, there had been an enforceable agreement, the 1^st plaintiff had been in breach thereof and that the defendant had rescinded the agreement.  The judge held in favour of the 1^st plaintiff and dismissed the defendant’s counterclaim.  He ordered that the defendant should pay the 1^st plaintiff $105,534,018.22 together with interest on the principal sum of $80,117,652.72.  Whilst ordering the defendant should pay the 1^st plaintiff’s costs, he made no order as to costs as between the 2^nd plaintiff and the defendant.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

2.  The plaintiff’s case is based upon an oral agreement made in April 1990 between Mr Henry Cheng (“Cheng”) who was the managing director of the 1^st plaintiff as well as being a non-executive director of the defendant.  The other person who made the agreement was Mr Tony Fung (“Fung”) who was the Chairman and Managing Director of Sun Hung Kai and Co. Limited and also the Executive Chairman of the defendant.  Fung and Cheng had been close friends for a very long time.  There was no doubt that they not only worked closely together but they also met each other socially on a very frequent basis.  In 1990 Mr K B Fung was the managing director of the defendant.  Along with Fung, he was a member of the Executive Committee of the defendant’s board, which is referred to in some of the documents as Exco.  Mr John Yip, who also features in the events relevant to this case, was also a member of Exco.

3.  The various directors of the defendant became aware that the 1^stplaintiff was about to embark upon a joint venture development of a site in Kuala Lumpur with IGB Corporation Berhad (“IGB”).  At that time, in early 1990, the development of the hotel project in Kuala Lumpur was, apparently, thought to have some attraction as an investment.  Although the defendant was a broker it was considered that such an investment might well be sold on to clients.  As such, the matter was discussed by Exco and it was agreed that Fung would speak to Cheng to see whether the defendant could be involved in the investment.  The intention seems to have been that the defendant would sell on the majority of its involvement whilst retaining a small part for itself.  It was in those circumstances that the agreement relied upon by the 1^st plaintiff came into existence.  It was a very simple oral agreement.  In the course of his evidence Cheng described the way in which the agreement came about as follows:

Because I had the intention to sell, to transfer half of my share, meaning 25% of the whole project, I mean I was intending to look for some partners to join me for that part.  I remember at that time there were other people who were interested and had made inquiries with me.  Because I was a familiar friend with Mr Fung, a good friend of his, Mr Fung at that time on the phone said he wanted to take the 50% of my share, which means 25% of the whole project.

But I then asked him whether he would like to have 25% of my share, instead of 50, which means 12.5% of the whole project.  I have told him that there are other people who wanted to join in, and I wanted to entertain my friends with some of the shares.

I remember very clearly that Mr Fung told me one thing.  He said he wanted all of it from me.  What I mean is, 50% of my share, because otherwise he would not have enough to share out.  Because he insisted that, eventually on the phone we agreed that I gave him the 50%.

Also on the phone, as Mr Fung knew briefly about the project already, I told him that we have to pay money-we have to pay the costs according to the proportion.  That means whatever it needs to develop the project, we would share in the ratio is mentioned.  We would share the same risk, according to that ratio.

(Transcript Day 3 pp 80-81)

4.  The 1^st plaintiff must have sent on a copy of a Memorandum of Agreement (“the Memorandum”) between the 1^st plaintiff and IGB very shortly after that conversation.  This was the first document executed between those 2 parties.  It was dated 11 April 1990.  One of the points made in this case is that the defendant never raised complaint that many of the arrangements of which it became aware were not in accordance with the original oral agreement.  Many of those complaints evaporate when the Memorandum is read.

5.  The Memorandum sets out the basis for the joint-venture between the 1^stplaintiff and IGB relating to the development of lots 113, 91 and part of lot 123 in Kuala Lumpur.  The Memorandum sets out that, initially, IGB would be putting the land into the arrangement whereas the 1^st plaintiff would be putting in money.   The relevant land would be acquired from IGB by a company which was referred to in the Memorandum as Newco.  The 1^st plaintiff would pay a deposit of M$4,250,000 which would be 10% of the amount which the 1^st plaintiff would have to pay initially.  The structure of the agreement was that the land was valued at $85 million and IGB would be compensated for the land as to half in cash and half in shares in Newco.  The land was to be used to develop two international hotels, one would be a five-star business class hotel and the other a four-star tourist class hotel.  It was also made clear that IGB would develop the land adjacent to the site as office buildings but that that should not interfere with the development that was to take place. 

6.  Importantly, the Memorandum also sets out that the 1^st plaintiff would act as the hotel and construction “Advisor” in respect of the development and provide technical consultancy services for the hotels and the construction.  IGB would act as the Project Manager in respect of the development on the basis of plans and specifications which were referred to.  The contracts relating to the construction of the hotels would be awarded by open tender but Newco would enter into agreements with the 1^st plaintiff or its nominees for the operation and management of the hotels on terms which were to be mutually agreed.

7.  The Memorandum was not only passed to the defendant but the defendant had that Memorandum before making any payment under the oral agreement.  On 11 April 1990 John Yip sent a memo to the defendant’s Treasury with a copy to a C C Kwok requesting a cheque for the defendant’s half share of the deposit.  The Memorandum is referred to in that memo from John Yip with a statement that Sun Hung Kai would be procuring investors for the 50% but that Exco had agreed that Sun Hung Kai would retain 5% of the whole project.

8.  Although, apparently, not exactly within the three months referred to in the Memorandum, the 1^st plaintiff and IGB did execute a Shareholders Agreement which was dated 20 July 1990.  A copy of that agreement appears to have been sent by fax to the defendant.  On 24 July John Yip again requested the issuance of a cheque to pay for the remaining instalment which was then due.  The memo from John Yip refers to the Shareholders Agreement as having been executed on 15 July. 

9.  Mention should be made that the corporate vehicle used to develop the project and run it thereafter was Great Union Properties Sdn Berhad (“GUP”).  This company had held the land on behalf of IGB.  It was considered more convenient to use this company as the corporate vehicle rather than incorporate another company and have the land transferred.  Inquiries were made in aid of due diligence to ensure that there were no outstanding liabilities that GUP brought with it.  In my view nothing turns on the fact that GUP was used as the corporate vehicle.

10.  It would appear that the defendant did, indeed, attempt to sell on at least part of the interest which it had acquired.  There is, for example, a copy of a telex indicating that John Govett Investment Management might be interested but were querying why the costs in relation to the construction of the hotels had increased in the year since the project had first been considered.  There was a letter of 27 March 1991 in which the 1^st plaintiff gave the defendant details of the development costs which were put at M$586.71 million inclusive of the land costs which was at that stage still M$85 million.  That letter also contained estimates as to when the project would be completed as it was apparent that planning permission was still some way off.  It was thus not until a year later that the 1^st plaintiff passed to the defendant copies of a proposal for a term loan of M$340 million and, by a memo sent to the defendant dated 7 May 1992, the 1^st plaintiff continued by setting out the original estimated development costs which came to a total of M$563,600,000 and which were to be financed principally by the share capital of M$94,500,000 and shareholders loans of M$132 million and a bank loan of M$326 million.  The indication was given that that might have to be revised.

11.  Contemporaneous notes on documents in early 1991 indicate that because the defendant intended to sell on at least the major part of its interest in the project, it did not desire to have its shareholding in GUP, the company developing and running the project, transferred to its name but was content to have it held on its behalf.  In April 1992 the 1^st plaintiff informed the defendant that the GUP shares of the 1^st plaintiff and the defendant would be held by the 2^nd plaintiff which was to be owned by the 1^st plaintiff and the defendant together.  The defendant was thus well aware that the vehicle to hold the 1^st plaintiff’s interest was the 2^nd plaintiff and was content to have its own interest so held.  Indeed, because it was the defendant’s intention to sell on the major part of its interest, it deliberately did not pursue the enquiries that had been made of it to provide details necessary to secure approval for its investment from the Malaysian Foreign Investment Committee (“FIC”).

12.  In April 1992 Fung requested Cheng to release the defendant from any involvement at all in the project.  Cheng, however, refused that request.  He reminded Fung that at the inception he had accommodated Fung’s request for the defendant’s involvement to be 50% of the 1^st plaintiff’s involvement and that had been acceded to despite the fact that Cheng had wished to accommodate others with part of the 1^st plaintiff’s entitlement.  In the result, Cheng agreed to reduce the defendant’s involvement to 25% of the 1^st plaintiff’s share, that is 12.5% of the whole project.

13.  In July 1992 there was a rights issue of GUP shares in order to increase its capital up to M$100 million.  The 1^st plaintiff had notified the defendant of the intention of GUP to have a rights issue in a letter dated 7 April 1992.  The defendant was at all times well aware of that if it wished to maintain its relative shareholding in the project at 12.5% it was necessary for it to subscribe to the relevant part of the rights issue.  Far from objecting to this, there is no dispute that, in due course, the defendant did indeed claim to be the owner of 12.5% of GUP.  It could only have done so on the basis that it was liable to subscribe to the rights issue.

14.  There was a change of management of the defendant in 1996 when the defendant was effectively taken over by Allied Properties (HK) Ltd a company controlled by Lee Ming Tee.  The takeover was announced on 31 May 1996.  Nothing specific turns on this. 

15.  It is sufficient to draw attention to paragraphs 32 to 48 of the judgment which sets out a series of events in which those responsible for running the defendant company in the period from 1995 to beyond the takeover acknowledged that the defendant was obliged to make payments in respect of contributions for the defendant’s share of the project.  The judge found as a fact that those acknowledgements had been made.  On this appeal, no attempt was made to dispute those findings of fact.

16.  At the trial it was the defendant’s case that, in the first place, the April 1990 oral agreement between Cheng and Fung had been too indefinite and indeterminate to constitute a legally binding agreement.  The alternative case put forward was that at the inception in April 1990, Fung had stipulated that the defendant’s involvement would be limited simply to the cost of the shares and that there would be a limit to its liability.  It was said that the term “dai chong” meaning “table limit” had been used.  That meant in effect that the defendant would not have to pay any of the costs or capital contributions for the construction of the hotels.  The judge rejected both arguments and indeed specifically rejected the evidence of Fung in regard to the defendant’s major argument, namely, that the defendant’s liability to contribute had been limited.  It may also be mentioned that he rejected the evidence of Lee Ming Tee.  But, of course, since the latter had not been a party to the initial agreement, his evidence was, at best, marginal in respect of the initial agreement.

This appeal

17.  On this appeal, Mr Thomas QC, who appeared on behalf of the defendant, did not seek to challenge the judge’s findings of fact nor the judge’s rejection of Fung’s evidence.  Whilst he did not pursue the argument that the defendant’s involvement had been limited by an agreement to limit the monetary contribution simply to the price of the shares, he, in effect, argued similar points to those that had been argued below.  In the first place his main argument was that the agreement reached in April 1990 was not capable of giving rise to legally binding contractual obligations.  In the second place it was said that all that the defendant had agreed to was that it would purchase shares but not that it would finance the project.  As a fall back position, counsel argued that the defendant’s liability in respect of financing was limited to paying the interest in respect of capital sums provided by the 1^st plaintiff less any amount recovered from GUP.

18.  As part of the first point relied upon by the defendant in this appeal, it was said that it was inherently improbable that a contractually binding promise should have been made.  The observation that might be made in respect of that argument is that it is for the trial judge to consider the inherent probabilities when deciding the facts of the case.  The points taken on behalf of the defendant in respect of this part of the case were that the obligation, if it existed, on the defendant to provide funding was unlimited, unsecured and indeterminate to the extent that the scope and length of the project had not been determined.  It was said, in effect, that no businessman would commit his company to such open-ended liabilities.  These are, no doubt, good points to be argued at first instance.  They clearly were so argued and the judge rejected them.  He rejected them because he accepted Cheng’s evidence. 

19.  Amongst other things, Cheng pointed out in evidence that Fung was aware, in general terms, of the nature of the project and the sort of amounts which were involved.  This court’s attention was drawn to the cross-examination of Fung in which those matters were confirmed.  Of course, at the early stages nobody knew precisely the exact amount of the total cost of the project.  But that does not mean that a party does not have a good idea of the “ball park” figure nor that it would not be willing to take up shares with their consequent liability in relation to the costs of the project.  Moreover, as Cheng said in evidence, a matter which no doubt the judge accepted, the agreement which was arrived at between Cheng and Fung was one which was based upon trust.  As Cheng said they were good friends and Fung trusted him and knew that Cheng would try to get the best conditions that he could and furthermore, both companies would be in “the same boat”.

20.  It may be that many commercial agreements run to tens if not hundreds of pages.  It may be that in many commercial agreements every eventuality is covered with a myriad of clauses drafted by cautious lawyers.  On the other hand, I see no reason why an enforceable contract should not be made between two parties on the simple basis that one party would take half the interest in a project and bear half the costs, leaving it to the other party to undertake all the work in relation to that project and arrange things in the best way he could for both parties.

21.  Complaint was made in this court that the 1^st plaintiff had benefited in a number of respects in a way which was not accounted for, or not intended to be accounted for, to the defendant.  Heavy reliance was put on such matters as the fact that the 1^st plaintiff was involved in the construction of the hotels, both as to the planning and coordination and because an associated company had a direct involvement in the construction of the hotels.  Complaint was also made about the management contracts in relation to the hotels.  In this respect, it was said that not only did the 1^st plaintiff benefit from those management contracts whilst they were in its control, but it made a capital profit on the disposal of the contracts to other parties. 

22.  There seem to me to be two points which arise on this.  In the first place, the Memorandum signed on 11 April 1990 made very clear that the 1^st plaintiff would be benefiting not only as the construction “Advisor” in respect of the development but also in relation to technical consultancy services for the hotels and the construction and that it would also be the party with whom “Newco” would enter agreements for the operation and management of the hotels.  This was known to the defendant at the very least at that time that the first payment was made.  Although it might be said that this was after the oral agreement, clearly if it was to be said that that was not encompassed in the original understanding it should have been said at that time and the payment withheld.  To wait until nearly 10 years later before even suggesting that there was something amiss in those arrangements and that those arrangements of themselves would raise doubt as to whether there had been an agreement and, if there had been, whether it was enforceable, seems to me to be a mark of desperation.  In any event, much of the way in which the argument was put seemed to be directed to showing that there had been some undisclosed profit or breach of trust on the part of the 1^st plaintiff which would necessitate accounting for profits to the defendant.  Again, these matters were clearly known to the defendant all along and such a claim does not seem to me to arise in this case.

23.  A number of other points were raised for example as to whether the defendant would have the right to appoint a director of GUP; as to what their participation rights in the hotel project would be; as to whether they were entitled to voting rights and so forth.  In respect of these matters, as indicated above, it may well be that in many contracts similar matters would be spelt out.  In respect of this contract nothing was said and from all that can be gathered the defendant was not concerned about not having voting rights directly in GUP or about being able to appoint directors or to have any interest in the hotel management contracts as an operator.  At the time the oral agreement was entered into the defendant intended to sell on the greater part of its involvement and only to retain a small interest itself as a passive investor.

24.  In relation to the funding, it was said that it had not been agreed as to when, or in what circumstances, or upon what proof, a participant should be required to provide funding.  Again, it seems to me that this is a matter of the evidence which the judge accepted.  Cheng said in evidence that there were three important components: the first was equity funding, the second was shareholders loan and the third was outside financing.  He said:

	We would try our best to get bank financing.  For the rest, it will be equity and shareholder loans.
	At that time when the agreement was reached, I said very clearly that, apart from the third-party financing, the rest would be equity and shareholder loans, and we would pay according to the ratio.
Q.	You said that; that was discussed with you in the telephone conversation with Tony Fung, you said?
A.	Of course not on this.  As I have said to you before, what I said to Tony Fung was, we have to show the money needed for development, and the risk.  Put aside bank financing.  As you know, the rest will be the money needed for development.  I have said very clearly that each party would bear the rest of the money needed.
(Transcript Day 4 p 45)

25.  I see absolutely no reason why it is not possible for two parties to enter an agreement on that basis.  It was on the basis that the party coming into the agreement would rely on the other party involved to do the best it could but that if third-party financing was not available then it, itself, would have to provide its share of the rest of the funding.  Once the judge accepted Cheng’s evidence that he had explained to Fung that taking up the interest in the project would involve having to provide finance by way of capital or shareholders’ loans to finance the project, the argument that the defendant was only buying shares clearly fails.

26.  In any event third-party financing does not seem to have been the answer in this case.  One of the complaints made by Mr Thomas during the course of argument was that there had been no distribution of profits by GUP and that it was by no means clear as to when any profits would be made by GUP that could be distributed.  It is clear on the evidence that the reason there has been no profit made by GUP is that, despite the profitability of the hotel operations as such, the company has not made money because of the financing costs.  Mr Thomas’s complaints as to the continuing liability to provide funding has to be seen in the context of the project involving heavy borrowing in preference to full capital payment at the inception.

27.  Complaint was made by Mr Thomas that the defendant was excluded from decision making in relation to the project.  But here, again, the validity of such an argument depends upon the basis upon which the defendant agreed to take up 50% of the 1^st plaintiff’s interest.  It was clearly not the defendant’s intention to have anything to do with the management of either the development or the hotels.  The defendant was interested in taking up the 50% share of the 1^st plaintiff’s interest so that it could sell it on to other investors.  Although it would retain a small interest, there is no suggestion that it was a developer or hotel manager.  Our attention was not drawn to any contemporaneous evidence that the defendant wished to have a share in the management of the development: there is no letter to that affect and there was, apparently, no evidence to the effect that it had sought any such role.

28.  In the course of argument, Mr Thomas sought to rely upon a number of the letters written to the 1^st plaintiff by its solicitors in which the solicitors raised queries and pointed out difficulties that they encountered in drawing up a formal agreement between the 1^st plaintiff and the defendant.  That does not mean, however, that the oral agreement was not effective and binding.  For example, although the solicitor might have written expressing concerns about the broadness of the financing obligations which the defendant would have on the basis that the development had taken place and that could simply be called for, that was, in part a reflection of the fact that, if put into writing, the commitment which the defendant had entered would appear particularly heavy.  It does not mean that there was any doubt about the matter.  For example, when, in April 1991, the defendant sent a fax to the Malaysian branch of a well-known international insurance company about the possible involvement of that company by its taking up 20% of the project, there was no difficulty in describing that project and the share of the interest which the defendant was proposing to sell on to the insurance company in terms that there was a funding obligation which involved the construction costs, professional fees and all the other incidental expenses which go into the development of a project.

29.  As to the complaint that the scope of the venture was not determined, it would appear that in broad terms it was.  Obviously there could be changes in the outline of the project along the way and the question would arise as to whether those changes were such as to nullify the original agreement or were simply variations of the project in a way which was within the broad framework that was envisaged.  If a party chooses to have an interest in a development on the basis that it would rely upon one of the parties to that development to take care of its interest and to make all decisions relating to the development there is nothing wrong, or indeed uncommercial, about such an arrangement.  Obviously no sensible businessman would enter substantial obligations in that regard unless it trusted the party that would be looking after its interest; but if it did trust that other party and that other party was in the same “boat”, then there is nothing uncommercial about letting that other party do all the work, even if that other party would also gain from undertaking various parts of the project as a contractor or as the operator of any business which was fundamental to the project such as, in the present case, hotels.

Limitation

30.  It was argued that any liability that accrued before 25 February 1993 was irrecoverable because it was statute barred.  In the judgment below, the judge held that there was no statute bar to the action prior to 25 March 1993 on the basis that the debt had been acknowledged by a letter dated 18 December 1997 from the defendant written by its Executive Chairman Arthur Dew and that any liability in respect of the rights issues had been acknowledged in the letters of 18 December 1997, 3 March 1998 and 7 April 1998.  For the plaintiff it was again argued that these could not constitute admissions of liability in respect of the amounts claimed or any amounts.  The letter of 18 December 1997 from Arthur Dew reads, in the material part:

“	I have to advise that our position in this matter is as follows:
	…
	3)	our file also indicates that it was also agreed that New World will provide the necessary Malaysian funding for our company in excess of the Project loan at a rate of interest to be agreed.
	…
	Accordingly, I would appreciate it if you could supply us with confirmation by Stapleton that it holds 12 1/2 % of the GUP shares as nominee for Sun Hung Kai Securities Limited to be dealt with in accordance with its instruction.  I will then appoint our Accountants to analyse any capital amount in Malaysian Ringgit which might have been advanced by your company on behalf of our company and when this has been ascertained, I will discuss with you an appropriate rate of interest in respect of such advances together with an overall resolution of the matter.”

31.  Mr Thomas referred to a File Note dated 9 March 1995 to which, he said, paragraph 3 of that letter referred.  The first point to note is that it may well be that in the defendant’s mind paragraph 3 referred to that File Note.  There is no suggestion however that the File Note was ever passed to the 1^st plaintiff and the question must be as to what the letter itself means.  In any event I would refer to the fact that the File Note refers to the defendant taking 12.5% interest of the investment project and its risk.  The File Note also refers to the plaintiff providing the necessary funding for the defendant in excess of the project loan at a rate of interest to be agreed.  Hence, far from undermining the existence of any agreement to be responsible for the funding of the project, that File Note confirms it in terms of the plaintiff arranging the finance on behalf of the defendant. 

32.  In the course of argument, Mr Thomas drew attention to the decision of Parker J in Kamouth v Associated Electrical Industries International Ltd and another [1980] 1 QB 199.  At page 209D Parker J said:

“It is clear that an acknowledgement within the statute does not have to say in terms, ‘I acknowledge that a certain sum is due,’ but it does have to get as far as being an admission that something is due and that something must be ascertainable by extrinsic evidence.”

That test seems to me to be satisfied by the letter of 18 December 1997.  On its proper construction, the letter does not merely amount to a statement that the defendant “might be prepared to look at things”, as was argued by Mr Thomas.  It is a clear acknowledgement that there was an agreement that the 1^st plaintiff would be providing funding for the defendant and that the defendant claimed that it was entitled to 12.5% of the GUP shares.  Furthermore, it could not have been entitled to that 12.5% if it had not subscribed for or at least been responsible for subscribing for the rights issue.  The final sentence quoted above appears to me to be an acknowledgement that there is an amount due, albeit unascertained, but clearly ascertainable.

Quantum

33.  Under this heading, it was sought to be argued on behalf of the defendant that the nature of the obligation which the defendant had undertaken was undefined and that a claim for reimbursement of monies provided could only have been made by the 2^nd plaintiff and that the judge had dismissed the 2^nd plaintiff’s claims.  It was said that even if there was any obligation on the defendant, it was an obligation to reimburse the 1^st plaintiff for having been “kept out of its money”.  In those circumstances it was said that the only damages that would be payable would be interest which would be payable on those sums.  GUP was a solvent company and the 1^st plaintiff had suffered no loss as a result of making the loans on behalf of the defendant because eventually it would be repaid by GUP.

34.  It seems to me that the short answer to those propositions is that because of the oral agreement between the 1^st plaintiff and the defendant, the 1^st plaintiff was under an obligation to make payments of 50% of the required contributions to the development of the hotels.  As a result of the oral agreement, the defendant undertook a liability to pay 25% of the total amount.  That obligation was not simply to lend but to fund a relative portion of the financing.  The judge specifically so found.  Because of the way the construction costs were funded, GUP has incurred financing costs for a much longer time than if the funding had been by, for example, share capital.  Hence, any continuing obligation to make contributions, despite the profitability of the hotel operations, in reality is part of the financing costs of the development.  The result may be a lower cash flow return from GUP but it does not mean that there has not been capital appreciation.

35.  As regards quantum, the judge found the various items of quantum, namely, expenses, the cost of the subscription for the rights issue and the shareholders loans in paragraph 155 of the judgment.  The amounts so found as set out in the first sentence of paragraph 155 are amounts which were submitted to the judge in closing submissions after all the evidence had been completed.  The amounts which had been previously sought from the defendant had included amounts of interest.  In my view it was open to the judge to accept the figures to which he referred in the judgment.  Quite apart from the proposition that they are questions of fact, I consider it was open to the judge to hold those amounts as being the correct amounts which were due.  I do not consider that the defendant is correct in suggesting that there had to be any further proof of the amounts that were due.  It was suggested, for example, that it was not sufficient for the 1^st plaintiff to demonstrate that it had been called upon to pay the amounts which constituted the shareholders loans.  In my view that is clearly not correct.  As was demonstrated in the course of argument in this court, the 1^st plaintiff kept the defendant informed from time to time of the amounts which had been expended as part of the shareholders loans going to finance the project and there does not seem to me to be any ground for any valid dispute about those amounts.

36.  Finally, on this aspect, it was suggested that the defendant was not liable to pay its share of the cost of the rights issue.  In my view this argument must fail.  It was made aware of the rights issue and the fact that in order to maintain its shareholding at 12.5%, it was necessary for the defendant to subscribe to the rights issue.  There was never any dissent and the defendant never objected to the rights issue.  On the contrary, it claimed a 12.5% interest in GUP and requested confirmation of that.  It could only have done so on the basis that it subscribed for the rights issue.

Currency

37.  A point was taken that the judge should have assessed any damages in Malaysian Ringgit and not in Hong Kong dollars.  In my view this argument is again, fallacious.  Although the 1^st plaintiff paid many of the sums in Malaysian Ringgit in respect of which it claims reimbursement as part of the damages, it did so by converting Hong Kong dollars.  Both the 1^st plaintiff and the defendant are Hong Kong companies.  It must have been in the contemplation of both parties that any contribution towards the development costs, if paid by the 1^st plaintiff, would have to be provided for out of the 1^st plaintiff’s funds which might well be presumed to be in Hong Kong dollars.  Indeed, there is no reason for contemplating that the 1^st plaintiff might have had Malaysian Ringgit available for the payment of such sums.  It was clearly open to the judge to assess the damages in Hong Kong dollars and I see no basis for challenging that.

Interest

38.  The judge assessed the interest at judgment rate from the date of issue of the writ.  That had neither been sought by the plaintiff in their claim nor in their submissions.  In respect of interest up to the issue of the writ, the judge considered that the appropriate rate of interest had been 5% up to 14 April 1996 and thereafter at 9.5%.  In view of the fact that it would appear that for periods in 1998 the prime rate was 10% reducing to 9.25%, I consider that an appropriate rate would be to follow the prime rate until judgment and after judgment, the rate should be calculated at judgment rate. 

Counterclaim

39.  The defendant pleaded a counterclaim which the judge rejected.  On this appeal, Mr Thomas sought to resurrect the counterclaim.  The pleading in paragraph 42 of the defence and counterclaim is that the 1^st plaintiff and/or the 2^nd plaintiff acted in breach of warranty of authority in entering the agreement with IGB on behalf the defendant.  The argument raised in this court relies more on the pleading in the defence, repeated for the purposes of the counterclaim and appears to have been similar to the second part of the argument raised at first instance, namely, that the plaintiff failed to procure the 2^nd plaintiff to execute a deed of trust in favour of the defendant in relation to the GUP shares and to seek FIC approval for the proposed transfer of the beneficial ownership of the relevant GUP shares to the defendant.  The judge dealt with that argument in paragraph 151 of the judgment.  He said:

“However, SHKS’s pleaded case was completely destroyed by Tony Fung who gave evidence to the effect that the preferred scenario was for Stapleton to hold the GUP shares for SHKS.  SHKS’s case is also inconsistent with the two contemporaneous handwritten notes of John Yip made in April and May 1991 (see paragraphs 11-14, ante).  I therefore reject SHKS’s case of an agreement to participate by way of a direct holding of the GUP shares.  I find that under the arrangement in April and May 1992, the parties agreed to vary the Oral Agreement to the extent that NW would hold the GUP shares on trust for SHKS and no application would be made to FIC in respect of the transfer of the shares until SHKS had found a committed investor.  Accordingly, SHKS failed to prove the terms of the June agreement or any breach of that agreement.  SHKS’s counterclaim for breach of that agreement and return of the three payments made to NW must be dismissed.”

40.  I would only add that it would appear from the transcript of Fung’s evidence that the fact that the defendant’s shareholding in GUP was held by the 2^nd plaintiff was not a matter of any concern to the defendant since at the time it was quite happy with that arrangement.

Conclusion

41.  For the foregoing reasons, I would dismiss this appeal save to vary the interest rate for the period from 16 December 1998 to the date of judgment from the judgment rate to prime.  I would make an order nisi that the costs of the appeal should be to the 1^st plaintiff.  Even if it had been appropriate to make an allowance in respect of costs on the grounds that there has been an adjustment of the interest rate, in my view, the defendant should be deprived of that because of the way the appeal was presented, which caused an unnecessary waste of time on the first day of the hearing.  In taking that matter into consideration in this way, I consider that the defendant has escaped a far more serious order.

Hon Le Pichon JA:

42.  I agree.

Hon Burrell J:

43.  I agree.