YAO GUOLIANG v. LIU YANG

HCA 2269/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2269 OF 2015

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DECISION

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Introduction

1.  This is an appeal from the decision of Master K Lo dated 13 April 2017 (“the Decision”) whereby the master acceded to Mr Yao’s application for summary judgment against Madam Liu for the sum of US$1,078,825.50 (“the Sum”) by summons dated 26 October 2015 (“the Summons”). The Sum allegedly represents the balance of the amount of US$2,500,000.00 payable by Madam Liu under a letter of undertaking (“the Written Undertaking”).

2.  The Written Undertaking is the Chinese language (simplified Chinese characters) written in the following terms:

承諾函

本人劉央 (香港身份證號: 「redacted」,保證在[2015]年[7]月[30]日前退回給姚國梁先生美元貳佰五十萬元整。逾期同意每天支付應付款的千分之五作為滯納金。

特此承諾!

簽名:[(Signature of D)]

日期: [2014.7.30]”

3.  Mr Westbrook SC and Mr Jason Yu, appearing for Madam Liu here but not before the master, in their written submissions provide an English translation of the Written Undertaking and no issue of its inaccuracy has been raised. It is as follows:

“I, Liu Yang (HKID No: [redacted]), guarantee the return of USD2,500,000 to Mr Yao Guoliang by [30 July 2015]. In case of overdue payment, I agree to pay 5/1000 of the payable sum daily as default charges.

I hereby promise!”

4.  It should be noted that there were some blanks in the Written Undertaking for Madam Liu to fill in. Madam Liu did so and she wrote the three highlighted parts, which included her ID card number, the deadline for payment and the date of the Written Undertaking. She appended her signature to the Written Undertaking too.

5.  It is not in dispute that Mr Yao already received a sum of US$1,425,212.00 (“the Paid Sum”) from Madam Liu in or about July 2015.  Mr Benjamin Yu SC (and Mr Yeung) for Mr Yao has expressly indicated to this court that Mr Yao abandons the claim for the default charges as he did before the master. The issue here is whether Madam Liu is legally obliged to pay Mr Yao the Sum pursuant to the Written Undertaking.

6.  Mr Yu submits that it is a simple and straightforward contractual claim. Mr Westbrook submits that the Written Undertaking should be vitiated mainly by reason of misrepresentation and for want of valid consideration.

7.  On the other hand, Mr Westbrook expressly abandons the plea of non est factum, on which the former counsel for Madam Liu relied at the hearing before the master.

8.  The parties agree that this court should deal with this appeal by way of a rehearing of the Summons save that Mr Westbrook should first open the appeal. Much has been said about the reasoning of the master in the Decision by both parties. Though this court may adopt the reasons given by the master where appropriate, due to the substantial changes of arguments advanced by the defence, I am inclined to consider the Summons afresh without placing any weight on the Decision.

Background facts

9.  Before I set out the respective cases of the parties, I shall first outline the undisputed essential background facts and in this regard I largely adopt those matters stated in the written submissions of Mr Westbrook with gratitude.

10.  By way of personal background, Mr Yao has a bachelor degree in economics and he is the founder of a listed company in Hong Kong engaging in the trade of crude oil (“the Listed Company”). Mr Yao is the executor director and chief executive officer of the Listed Company. The other executor director is one Mr Wang Jian Sheng (“Wang”).

11.  Madam Liu, on the other hand, professes to be an experienced fund manager and she is the chairman and chief investment officer of Atlantis Investment Manager (Hong Kong) Ltd (“Atlantis”). In these positions, Madam Liu, among other matters, deals with the two private funds managed by Atlantis, namely, the Riverwood Umbrella Fund (“the Umbrella Fund”) and its sub-fund, the Riverwood Fortunate Fund (“the Fortunate Fund”) at all material times.    

12.  Madam Liu came to know Mr Yao through one Mr Che (“Che”) who has been a customer of Atlantis. On 18 January 2011, Mr Yao lodged an application form with Atlantis for the purpose of his investment in the Fortune Fund by way of subscription of ordinary shares in the Umbrella Fund. Eventually he entered into an investment agreement with Atlantis evidenced by undisputed documentary evidence (“the Investment Agreement”). Briefly stated, Mr Yao agreed to invest a total sum of US$5 million in the Fortunate Fund (“the Investment Sum”) and it was an express term of the Investment Agreement that Mr Yao might redeem ordinary shares on any redemption day (i.e. the first business day in January, April, July and October of each year, or such other business days as the directors may prescribe) on giving notice to the Administrator. The Administrator was then a company known as Northern Trust International Fund Administration Services (Ireland) Ltd.

13.  As evidenced by a contract note dated 20 January 2011 issued by the Administrator, Mr Yao purchased 23,041.475 shares in the Fortune Fund at a consideration of US$5 million (“the Purchase Price”) at the unit price of US$217 (“the Acquisition Unit Price”).

14.  From about May 2011 to April 2013, the Fortune Fund did not fare well in the market and the value of Mr Yao’s shares had long remained well below the Purchase Price.   

15.  Mr Yao by a written notice dated 15 April 2013 issued to the Administrator made a request to redeem US$2.5 million from his investment in the Fortune Fund (“the 1^st Redemption”).

16.  Pursuant to the request, 17,218.217 shares were sold at the unit price of US$145.19 on 2 May 2013 as evidenced by a registration advice issued by the Administrator dated 8 May 2013. It can also be seen in the registration advice that after the 1^st Redemption, there were 5,822.658 shares left in the account of Mr Yao (“the Remaining Shares”).

17.  The 1^st Redemption yielded a total sum of US$2,499,962.50 and the Standard Chartered Bank (Hong Kong) Limited returned the said amount to Mr Yao by the order of the Administrator as shown by a credit advice dated 8 May 2013 issued by the bank.

18.  On 30 July 2014, Madam Liu attended a dinner gathering at a restaurant in Causeway Bay (“the 30/7 Dinner”). Che and Wang also took part in the 30/7 Dinner whilst Mr Yao was absent. It was during the Dinner that the Written Undertaking came into being. Wang produced to Madam Liu the Written Undertaking with the contents already printed therein in the first place whereas Madam Liu filled in the blanks in her handwriting with her signature.    

19.  As evidenced by a redemption contract note issued by Atlantis dated 2 July 2015, all of the Remaining Shares were sold pursuant to an order received in the morning of 30 June 2015 at a unit price of US$244.77 (“the 2^nd Redemption”), which exceeded the Acquisition Unit Price. The total amount redeemed became the Paid Sum.

20.  On 29 September 2015, Mr Yao commenced these proceedings to claim the Sum in reliance of the Written Undertaking having given credit for Mr Yao’s receipt of the Paid Sum.

Mr Yao’s case

21.  The crux of the pleaded case is based on the foregoing undisputed matters. The controversial contention of Mr Yao is that he alleges that during a telephone conversation between Madam Liu and him in late December 2010, Madam Liu in her personal capacity verbally guaranteed to him that all the sums invested by him in funds connected with her would be returned to him in full in any event and at any time in consideration of his agreement to invest the Investment Sum into the funds connected with her (“the Verbal Undertaking”).

22.  Mr Yao further avers that in late March or early April 2013, he indicated to Madam Liu that he wanted to recall the Investment Sum in its entirety. Therefore, the 1^st Redemption was carried out in May 2013.

23.  Mr Yao then chased after Madam Liu for the return of the balance of the Investment Sum after the 1^st Redemption and in another telephone conversation in or about July 2014, he told Madam Liu that he would take legal action against her pursuant to the Verbal Undertaking.

24.  It was allegedly under these circumstances that Madam Liu agreed to give the Written Undertaking in consideration of Mr Yao’s agreement to forbear or actually forbearing to take legal action against her until 30 July 2015.

25.  Mr Yao avers that he did withhold legal action for the balance of the Investment Sum until Madam Liu failed to repay him the Sum before 30 July 2015 pursuant to the Written Undertaking.

26.  It is pleaded that the failure of Madam Liu to pay the Sum amounts to a wrongful breach of the Verbal Undertaking and the Written Undertaking or any one of them. On that basis, Mr Yao claims the Sum.

27.  The affirmation evidence of Wang and Mr Yao’s own evidence support his pleaded case for the purpose of his application for summary judgment.

Madam Liu’s case

28.  Madam Liu has not filed her defence due to the Summons. She has altogether filed four affirmations to oppose the Summons. She has made a number of allegations in her affirmations. I need only state her principal contentions for present purposes.

29.  First and foremost, Madam Liu denies having made the Verbal Undertaking. It follows that Mr Yao, to his knowledge, has never had any claim against her to forbear. She then argues that the Written Undertaking is not supported by any consideration and hence is not enforceable.

30.  Madam Liu claims that the 1^st Redemption was a panic sale against her advice resulting in a big loss. After that, Mr Yao continuously harassed and pestered her.  He even on or about 29 July 2014 called her and made a threat to the effect that if she did not repay him, he would spend to harass her to death (“the Alleged Threat”).

31.  On the next day, the 30/7 Dinner was fixed with the arrangement of Che. Wang produced to Madam Liu the Written Undertaking at the end of the gathering. She alleges that before her filling in the blanks and signing the Written Undertaking, Wang first told her that she had to sign the same so that he could account to Mr Yao. Che then asked her to give him face and sign the Written Undertaking. Che further represented to her that he would take care of Mr Yao’s matter and he would top up the difference in case of a shortfall later since the sum involved was not large.

32.  Madam Liu claims that she trusted Che and she took the view that the document was not meant to be for real and was required only to stop the harassment of Mr Yao. She therefore acceded to their demand and completed and signed the Written Undertaking.

33.  Madam Liu, moreover, contends that had Mr Yao not insisted on the 1^st Redemption against her advice and had he waited until the 2^nd Redemption in 2015 to liquidate all his shares in the Fortunate Fund, he would have reaped a substantial profit.

Applicable legal principles    

34.  The applicable legal principles relating to O.14 applications are well-settled and are summarised in the relevant chapter of Hong Kong Civil Procedure 2018 Vol.1. I see no point making any express reference to the same.

35.  Whilst Mr Westbrook accepts that Madam Liu has to show a real and bona fide defence and/or triable issues, he reminds this court of the danger of resolving factual disputes on affidavit particularly in light of the dispute as to the existence of the Verbal Undertaking in the present case. Further, this court should consider whether or not the assertions of Madam Liu are believable rather than whether they are to be believed.

36.  Before my analysis of the evidence, I should first remind myself of the following dictum of Roger VP in in Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd[2009] 3 HKLRD 94 at §4:

“ … Applications for summary judgment are only suitable where the court can be satisfied that not only is there no defence but there is no fairly arguable point to be argued on behalf of the defendant. The court cannot embark upon a mini-trial based on affidavit. Except in the most clear and blatant cases, it is impossible for a court to put itself in the position of having to make findings of fact. It should rarely be necessary for a plaintiff, in making an application for summary judgment, to do more than verify the statement of claim. If, thereafter, a defendant can show a triable issue that should, there and then, be an end to the application.”

37.  I should also bear in mind the following dictum of Lam VP in UMG Recordings, Inc. and Ors v Profit Chart Development Limited and Ors, unreported, CACV262/2012, 19.2.2013 citing with approval the words of Bingham LJ in Crown House Engineering v Amec Projects Ltd [1990] 6 Const LJ 141:

“In view of the manner in which evidence had been deployed and the arguments advanced before us, it is necessary to state firmly at the outset that Order 14 application is not to be conducted as if it is a platform for a mini-trial. What had been said in 1990 by Bingham LJ in Crown House Engineering v Amec Projects Ltd [1990] 6 Const LJ 141 at p.154 remains sound advice today, notwithstanding the Civil Justice Reform,

“These cases emphasize that O.14 is for clear cases, that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. O.29 r.12 enables the court to order payment to a plaintiff to the extent that a claim, although not actually admitted, can scarcely be effectively denied. The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say in either case that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognise the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial (perhaps, as here, with trial of preliminary issues) rather than dissipate their energy and resources on deceptively attractive short-cuts.” (Emphasis added)

38.  With these instructive principles in mind, I turn to the specific allegations of Madam Liu.

Analysis

39.  I first deal with the allegation of misrepresentation, which in Mr Westbrook’s submission, should suffice to set aside the Written Undertaking even if it is supported by valid consideration.

40.  Mr Westbrook confirms with this court that the misrepresentation under complaint refers to the assertions made by Che to the effect that Madam Liu would not be personally liable under the Written Undertaking because Che would make up the shortfall in any event.

41.  Even if this court accepts that Che did make the assertions, in my judgment, Madam Liu cannot possibly make out a case of actionable misrepresentation so as to vitiate the Written Undertaking for the following reasons.

42.  First, as rightly pointed out by Mr Yu, there is no evidence that Che had ever been authorised by Mr Yao to make such a representation on his behalf at all. Madam Liu merely says that she trusted him because he was her good friend and had been a customer of Atlantis. Nor is there any evidence that Mr Yao had known that Che would make such a representation and Madam Liu would rely on it to complete and sign the Written Undertaking.

43.  Even if it is arguable that Che had the authority, his alleged representation is clearly not a representation of facts. It is merely an alleged promise made by Che to do something in the future and as such it cannot be the subject matter of an actionable misrepresentation.

44.  Mr Westbrook prays in aid Glory Gold Ltd v Star Play Development Ltd [2008] 2 HKLRD 416 and advances the proposition that a representation as to a present intention for future conduct comes within the ambit of an existing fact, as accepted by Cheung JA at §25.

45.  I have no problem with this proposition but here, there is no suggestion let alone evidence that when Che allegedly uttered the representation, he did not have any intention to fulfil his promise. Thus, there is no fraudulent misrepresentation. Nor is there any evidence that Che now does not have the intention to do so either.

46.  Another intractable problem is that it is hardly believable that Madam Liu would have believed, because of the alleged misrepresentation or otherwise, that she had no liability under the Written Undertaking in any event. The 30/7 Dinner was held immediately after the Alleged Threat, which Mr Yao purportedly made an unequivocal and serious demand for repayment of the balance of the Investment Sum with a menace. Wang attended the 30/7 Dinner as the representative of Mr Yao and he brought along the Written Undertaking.

47.  Even on her evidence, Madam Liu knew that the 30/7 Dinner was not an ordinary social event and that the issue between Mr Yao and she was intended to be resolved in the 30/7 Dinner. Against this background, Madam Liu could have no basis to believe that Mr Yao out of the blue changed his position and no longer required her repayment at all. Her assertion is simply not capable of belief.  

48.  I thus conclude that the purported defence of misrepresentation is a non-starter and must fail.

49.  Of course, even when Madam Liu fails to show any of the usual vitiating factors at common law, to obtain a judgment on the basis of the Written Undertaking, Mr Yao should first establish the enforceability of the same. The current bone of contention is consideration. Mr Yao relies on the Verbal Undertaking to show that he had had a bona fide claim against Madam Liu before they made a compromise embodied in the Written Undertaking.

50.  Mr Westbrook made a persuasive submission on how improbable that Madam Liu had ever given the Verbal Undertaking, making a forensic analysis of the available evidence. He makes a valid observation that there was no mention of the Verbal Undertaking whatever in the complaint email issued by Mr Yao’s secretary on his behalf on 23 May 2013. Nor was it mentioned in the Written Undertaking. He attractively suggests that, at the very least, the controversy relating to the existence of the Verbal Undertaking (and its enforceability) must call for a trial to resolve.

51.  The answer of Mr Yu is that it is not necessary to prove that the Verbal Undertaking was indeed given by Madam Liu. It suffices if it can be proved that there has been in existence a bona fide dispute or claim which Mr Yao agreed to forbear to enforce or did actually forbear to sue: Chitty on Contracts (32^nd Edn.) at §§4-025 to 4-055. The submission of Mr Yu, to which I agree, is supported by good albeit old authority.

52.  In Miles v New Zealand Alford Estate Co (1888) 32 Ch.D. 266 (C.A.) at pp.283-284, Cotton LJ, after reviewing some older authorities, had this to say,

“Now, what I understand to be the law is this, that if there is in fact a serious claim honestly made, the abandonment of the claim is a good “consideration” for a contract; and if that is the law, what we really have to now consider is whether in the present case there is any evidence on which the Court ought to find that there was a serious claim in fact made, and whether a contract to abandon that claim was the consideration for this letter of guarantee…

Now, by “honest claim,” I think is meant this, that a claim is honest if the claimant does not know that his claim is unsubstantial, or if he does not know facts, to his knowledge unknown to the other party, which shew that his claim is a bad one. Of course, if both parties know all the facts, and with knowledge of those facts obtain a compromise, it cannot be said that that is dishonest. That is, I think, the correct law, and it is in accordance with what is laid down in Cook v Wright  and Callisher v Bischoffsheim and Ockford v Barelli. What was stated in Cook v Wright by Lord Blackburn is this: “We agree that unless there was a reasonable claim on the one side, which it was bona fide intended to pursue, there would be no ground for a compromise; but we cannot agree that (except as a test of the reality of the claim in fact) the issuing of a writ is essential to the validity of the compromise.” Again, what his Lordship says in the subsequent case of Callisher v Bischoffsheim is this: “If we are to infer that the plaintiff believed that some money was due to him, his claim was honest, and the compromise of that claim would be binding and would form a good consideration, although the plaintiff, if he had prosecuted his original claim, would have been defeated.”

… But if the validity of a compromise is to depend upon whether the claim was a good one or not, no compromise would be effectual, because if it was afterwards disputed, it would be necessary to go into the question whether the claim was in fact a good one or not; and I consider … that the doctrine laid down in Cook v Wright  and Callisher v Bischoffsheim and Ockford v Barelli is the law of this Court.”

53.  Kwan JA in Swiss Singapore Overseas Enterprises Pte Ltd. v China CITIC Bank Corp. Ltd [2014] 6 HKC 55 also referred to the Miles case.   At §96, Kwan JA said this,

“An added benefit to the creditor may be found where a claim asserted by one party is disputed by the other and the parties agree to compromise their dispute on terms mutually agreed between them. “The assertions, denials and counter-assertions comprising the dispute need have no foundation in fact or in law provided they are made in good faith.” (Foskett, The Law and Practice of Compromise (7^th ed) §2-16) And as Bowen LJ said in Miles v New Zealand Alford Estate Co (1885) 32 Ch D 266 at 291: “[I]f an intending litigant bona fide forbears a right to litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does give up something of value. … I think therefore that the reality of the claim which is given up must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession.”

54.  Therefore, the relevant question should be whether Mr Yao had a reasonable and honest claim against Madam Liu which he bona fide intended to pursue before the parties reached a compromise in the Written Undertaking.

55.  On the evidence, I have no difficulties in concluding that such a claim, which Mr Yao bona fide intended to pursue, is clearly established on the incontrovertible documentary evidence.

56.  First, on 6 March 2014, Mr Yao sent a text message to Madam Liu in the Chinese language in the following terms:

“劉主席好! Amy 把您號碼給我了謝謝。我希望投資您基金的那筆投資，最近能夠返還給我。四年了，我一直是您忠實粉絲，對您很有信心”

57.  On the following day, Mr Yao sent to Madam Liu a text message, which reminded her of her oral promise, without which he would not have made the investment, that his investment would not be depreciated and would even be appreciated. He stated that he believed in gentlemen agreements more than written texts. The email was written in the following terms:

“謝謝主席! 早上好。你是點石成金的女神。我相信君子協議高於書面文字。當時要不是您口頭承諾保值增值，我也不會投。”

58.  Mr Yu draws my attention to two messages of Madam Liu to Mr Yao. First, in reply to the foregoing message, curiously enough, Madam Liu merely expressed her understanding of the foregoing message of Mr Yao by a short message consisting of two characters “明白” (meaning “understood”). Whilst it may be subject to debate as to what Madam Liu actually meant to understand, it is clear that she did not raise any objection to the allegation of her having made a promise to Mr Yao.  

59.  Another relevant message was sent by Madam Liu on 10 April 2014 in which she stated that she had to make up the shortfall if the price of the shares did not return to its original position (只是沒回到原位，我要補啊!). Even if this court concludes that this message is equivocal as to whether Madam Liu actually referred to the Verbal Undertaking, it was nevertheless in line with the honest belief of Mr Yao that Madam Liu was obliged to ensure that he would suffer no loss arising from the Investment Agreement.

60.  On the evidence of Madam Liu, the alleged harassment including the Alleged Threat and the agreed purpose of the 30/7 Dinner can only show that Mr Yao had seriously pursued the enforcement of the Verbal Undertaking.

61.  I cannot accept the submission of Mr Westbrook that there was no bona fide threat or intention to sue on the part of Mr Yao. At present it may be argued as a triable issue as to whether Mr Yao had expressly threatened any legal action based on the Verbal Undertaking before the Written Undertaking was made. This factual dispute cannot be resolved on paper. However, given the clear evidence of his insistence on the repayment of the Investment Sum to him by Madam Liu, a legal action only appeared to be inevitable.  

62.  In addition, it should not be overlooked that Madam Liu voluntarily completed and signed the Written Undertaking. Madam Liu was at the material time a mature lady with substantial social and commercial experience. It is inexplicable why Madam Liu would have done what she did if she had not had any pre-existing liability to pay Mr Yao. It is remarkable that Madam Liu even set the deadline for payment of the Sum herself.      

63.  For the foregoing reasons, I am of the firm view that it is plain that the Written Undertaking represented a good compromise of a genuine and honest claim of Mr Yao made in good faith. It is not essential that the Written Undertaking should refer to the original claim based on the Verbal Undertaking in my view so long as the Written Undertaking has the effect of Mr Yao’s forbearance to sue on the Verbal Undertaking. I am aware that Mr Yao has an independent cause of action based on the Written Undertaking. I can conclude that this claim is clearly borne out by evidence.

64.  Mr Westbrook argues that if Mr Yao did not forbear to sue at the request of Madam Liu, the consideration of forbearance to sue is nevertheless inadequate to support the Written Undertaking. He cites to this court a decision of the Court of Appeal in Yu Tai Hung Land Agency Ltd v Leung Wing Yin [1986] HKC 574 for the proposition that whilst an implied request is also feasible, it has to be pleaded.

65.  I do not find any merit in this challenge to the pleading. It is pleaded that Madam Liu signed the Written Undertaking. The Written Undertaking gave her a year to pay the balance of the Investment Sum.  It is common ground that Madam Liu filled in the deadline for payment. Indeed Madam Liu has never in her 4 affirmations explained why she chose to fill in a date a year ahead.  The clear conclusion is that she implicitly asked for a year to pay and in the interim Mr Yao should forbear to take legal action against her. I do not think Mr Yao should be denied summary judgment merely because he has failed to plead the undisputed primary fact in the Amended Statement of Claim. 

66.  I do not find it necessary to expressly deal with all other contentions of Madam Liu. None of them can amount to an obstacle to summary judgment. I believe the foregoing analysis should adequately point to the inescapable conclusion that the straightforward case of Mr Yao should justify the summary judgment granted by the master.

Conclusion and dispositions

67.  For the reasons given above, I agree to the Decision that Mr Yao is entitled to summary judgment and, accordingly, I dismiss the appeal of Madam Liu. For the avoidance of doubt, I also affirm the master’s decision on interest, about which I have heard no argument.

68.  Costs should follow the event. I do not disturb the costs order made by the master. For the costs of the appeal, Madam Liu should pay Mr Yao his costs forthwith, to be taxed if not agreed, with certificate for two counsel. I make an order nisi in these terms.   

69.  It remains for me to thank leading counsel and counsel on both sides for their assistance in this matter.