XCHRX NICEKIND HOLDINGS LTD. v. YIM WAI NING AND ANOTHER

HCA 3950/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3950 OF 2000

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REASONS FOR DECISION

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INTRODUCTION

(1) Background to this Action

1. In mid-September 1997, the Plaintiff ("Nicekind") wanted to subscribe shares in China Telecom ("the Shares"). A director of Nicekind, Mr Ma Nam ("Ma"), asked D1 ("Yim") to find someone who could fund the subscription and Yim agreed to do so. The exact nature of this "agreement" is one of the issues in this action: Nicekind regarded it to be an agency agreement whereas the Defendants deny this to be the case.

2. One D H International Limited ("DH") was subsequently located. While exactly who was/were involved in locating DH may not be a matter in dispute, Nicekind contends that Yim was its agent in doing so. Nicekind negotiated with DH regarding the subscription of the Shares and a profit-sharing agreement dated 8 October 1997 was signed between them ("the NK-DH agreement"). Under the NK-DH agreement, DH was to pay to Nicekind, among other sums, $6.5 million (being part of the agreed profits payable to Nicekind).

3. Nicekind also signed another profit-sharing agreement dated 9 October 1997 with a Wan Yu Industries Limited ("Wan Yu"), a company nominated by Yim ("the NK-WY agreement").

4. D2 ("Chung Fai") signed an agreement dated 9 October 1997 with DH whereby DH agreed to pay Chung Fai $15 million "to guarantee that Nicekind would be able to be allotted 5 million shares" (in the words of the learned Recorder in the CF proceedings (see below) at p. 7 of his Judgment) ("the CF-DH agreement"). The sum payable under the CF-DH agreement now becomes the subject-matter of this action.

5. DH defaulted in paying Nicekind $6.5 million when DH's cheque for that sum was dishonoured. Nicekind commenced an action (H.C.A. No. 1678 of 1998) against DH claiming for that sum ("the NK proceedings"). DH also defaulted in paying Chung Fai $15 million. Chung Fai commenced an action (H.C.A. No. 3351 of 1998) against DH claiming for that sum ("the CF proceedings"). The NK proceedings were settled by DH paying Nicekind $2.5 million. Chung Fai obtained summary final judgment against DH but the CF proceedings were also settled by DH agreeing to pay $13.6 million.

(2) The Nature of this Action

6. The nature of this action can be found in the Re-Amended Statement of Claim. Para. 2 thereof pleads:-

"[Yim]:-

(a) was authorized by [Nicekind] to act as its agent in finding a purchaser for [the Shares] ...;

(b) was an agent of [Nicekind]; and

(c) owned and fully controlled [Wan Yu] ...

(d) owned and fully controlled [Chung Fai] ... ".

Para. 10 thereof pleads:-

"In breach of the Oral Agency Agreement and/or fiduciary duty as pleaded under paragraphs 3 and 4 hereof, [Yim] on a date unknown to [Nicekind] (via [Chung Fai]) secretly entered into an agreement ... whereby DH agreed to pay [Yim] a referral fee in the sum of HK$15,000,000.00 ... ".

Para. 12A and 13 thereof plead:-

"At all material times, [Chung Fai] acted as a mere façade for [Yim] so as to enable [Yim] to evade his legal obligations to [Nicekind]

In the premises, the veil of incorporation between [Chung Fai], its controllers and [Yim] ought to be lifted and [Yim] and [Chung Fai] are liable to account to [Nicekind] ... ".

Nicekind claims the sum of $15 million from the Defendants in this action.

(3) The Mareva Order

7. As stated above, Chung Fai settled its claim against DH when DH agreed to pay $13.6 million. By an ex parte application made on 14 April 2000, Nicekind obtained a Mareva injunction order against the Defendants. This was varied on 20 April 2000 to provide inter alia for the deposit of $13.6 million into a special client account in the name of Chung Fai's solicitors.

8. Further, on 17 April 2000, Nicekind took out a summons for the continuation of the Mareva order. At the end of the hearing on 28 August 2000, I discharged the ex parte order and dismissed that summons. The reasons for doing so are as follows.

The Continuation/Discharge of the Order

9. In the Defendants' Skeleton Argument, the following points were raised:-

(a) there is no good arguable case that:-

(1) Yim was Nicekind's agent or otherwise owed Nicekind any fiduciary duties;

(2) Chung Fai was a façade of Yim;

(3) the CF-DH agreement was made without the consent and approval of Nicekind;

(b) the balance of convenience is against the grant of an injunction:-

(1) delay in the issue of this action;

(2) the poor quality of evidence on the risk of dissipation.

(c) there was material non-disclosure and/or misleading evidence.

10. They will be dealt with in turn below under separate headings.

(1) Good Arguable Case

(1)(a) Was Yim an Agent of Nicekind?

11. In order to determine whether a good arguable case has been made out by Nicekind, it is necessary to go into the evidence filed herein, as well as parts of the history relating to the CF proceedings and the NK proceedings.

12. Nicekind's evidence herein in support of the application for a Mareva order was summarized in Ma's affirmation dated 13 April 2000:-

"... it is only recently (because of the Court of Appeal decision in [the CF proceedings]) that I began to comprehend that at all material times, [Yim] was an agent of [Nicekind] in finding someone to inject capital for the subscription of [the Shares] ..." (para. 2 thereof) (emphasis supplied);

"... and I informed [Yim] my request for the subscription of [the Shares] and asked him to find me a party who could inject capital to subscribe [the Shares] which were to be allotted to me. Several days after my visit, [Yim] telephoned me and asked me about the unit price of [the Shares]. I told [Yim] that I would agree to fix the unit price of [the Shares] at HK$17.00 and I agreed to share some of the profits with [Yim] if [Yim] could successfully find me someone who could inject the necessary capital and pay the unit price of [the Shares] at HK$17.00. ... I had not put my thought to the type of relationship between [Nicekind] and [Yim] and this has not been further discussed ... " (para. 5 thereof) (emphasis supplied);

"In late September or early October 1997, [Yim] introduced one Mr Tai King Wai ... of [DH] to me and DH negotiated with [Nicekind] via [Yim] for the acquisition of [the Shares] ... At the beginning of the negotiation, [Yim] assisted [Nicekind] in communicating with DH ... " (para. 6 thereof) (emphasis supplied).

13. The Court of Appeal decision in the CF proceedings came about in the following manner. As stated above, Chung Fai brought that action against DH for the sum of $15 million. An application for summary judgment was made pursuant to R.S.C. Ord. 14. Mr Recorder Kotewall, SC entered summary judgment as claimed against DH. In his Judgment dated 22 July 1999, he said:-

"A number of defences are raised [by DH]. ... They can be summarised as follows ...

Because [Chung Fai] acted as agent for both [DH] and Nicekind, it was disentitled to commission or the referral fees from [DH] ... " (pp. 5-6 of the transcript);

"This defence is based on what Mr Ng [for DH] has referred to as the 'double agency point' ... Once again, the matter was attractively put, but even if [Chung Fai] was in some respects Nicekind's agent, any profit sharing arrangement is between Nicekind and Wan Yu, and there is simply insufficient material before me to link Wan Yu to [Chung Fai] so that they can somehow be identified. I have also not been able to see how [Chung Fai] was also [DH's] agent and what fiduciary duties, mentioned in passing by Mr Ng in oral argument, it owed to [DH] and where lay the conflict.

[Chung Fai's] role, taking [DH's] evidence, was to introduce [DH] to Nicekind. This it did. If [Chung Fai] was Nicekind's agent, [DH] certainly knew about it and appeared to have entered into a whole series of agreements without demur ... This double-agency defence therefore fails as well" (at p. 9 of the transcript) (emphasis supplied).

14. Mr E Chan, who also appeared for Chung Fai in the CF proceedings, informed me that only 2 affirmations were filed in the Ord. 14 application. One was what he called a "standard form" affirmation in support from Yim, the other was an affirmation from Tai King Wai of DH ("Tai"). Mr E Chan explained that because Chung Fai considered it tactically unwise to respond to the factual statements in Tai's affirmation (even though they were disputed/not accepted), no reply affirmation was filed. Irrespective of the reason, the fact remains only 2 affirmations were placed before the Courts in the CF proceedings. Tai deposed to the facts relating to the "double agency" defence as follows:-

"... Yim represented to me that he would be able to subscribe for [the Shares] ...

I indicated that I was interested in purchasing some [of the Shares]. Yim then told me that he was the agent of Nicekind which would be able to purchase not less than 5,000,000 [of the Shares] ...

On about 7 October 1997, I discussed with Yim on the terms of an agreement to be entered between Nicekind and [DH]. The first time I met the representative of Nicekind was in the evening of 7 October 1997 when I was introduced to [Ma] of Nicekind. ... As I said, Yim told me he was the agent of Nicekind and [DH] would already be required to pay Nicekind a fee in relation to the acquisition of [the Shares]" (para. 6 and 9 thereof) (emphasis supplied).

15. The Court of Appeal dismissed the appeal against the Judgment of the learned Recorder and said in its Judgment dated 3 February 2000:-

"... But it seems to me quite impossible to conclude that on the facts of this present case, Yim was ever given or ever accepted instructions to act as agent for DH in any material sense, or had entered into any such relationship with DH as to constitute him a fiduciary with a duty to protect DH's interest where those interests conflicted with those of [Chung Fai]. He was Nicekind's agent, (as DH knew); and no-one else's. It is abundantly clear that as far as DH was concerned, he was acting only and solely for himself ...

The other important point to be borne in mind is that this was a one-off transaction on very specific terms. In my view the Recorder's analysis of the position cannot be faulted and I do not consider that it is even arguable that [Yim] was acting in a capacity as the agent of [DH]. It is undoubtedly the case that he was the agent of Nicekind but that is an entirely separate matter" (pp. 8 and 10 of the transcript) (emphasis supplied).

16. Unknown to the Court of Appeal in the CF proceedings, a defence based on an alleged agency between Nicekind and Yim was raised by DH in the NK proceedings. As stated in para. 22 of Ma's affirmation filed herein dated 13 April 2000, DH (through Tai) contended therein that Yim was Nicekind's agent and Yim had authority to settle Nicekind's claim. The relevant part of Tai's affirmation (dated 11 March 1998) filed in the NK proceedings was similar to what he stated in his affirmation filed in the CF proceedings (see the passages quoted above). Nicekind was represented by another solicitors firm in the NK proceedings and affirmations were filed to deny DH's said allegation. In a 2nd affirmation of Ma dated 18 March 1998, Ma said:-

"... However, what is within my personal knowledge and I am definitely sure is that the Plaintiff has never appointed [Yim] as its agent in the instant sale and purchase of [the Shares] although [Nicekind] did have an agreement with one of the companies of [Yim], i.e. [Wan Yu] to share the profits arising ... The share of the profits given to Wan Yu was regarded by [Nicekind] as a consideration for [Yim] referring [DH] to [Nicekind] in the sale and purchase of [the Shares]. ... [Yim] informed me that he had never told Tai that he was [Nicekind's] agent" (para. 2f thereof) (emphasis supplied).

A draft Reply and Defence to Counterclaim was exhibited to this 2nd affirmation. It was drafted by counsel acting for Nicekind and it denied that Yim was Nicekind's agent.

17. Taking into account all the above and for the reasons given below, I do not find that Nicekind has established a good arguable case that Yim was its agent.

18. I will approach this issue firstly without regard to the "observations" made by the Court of Appeal in the CF proceedings. Nicekind has stated on oath (through Ma) in the NK proceedings that Yim was not its agent. I agree with Mr E Chan's submission that Ma deposed to this as a matter of fact. The factual reason for such a statement was also deposed to by him. Further, Nicekind was apparently legally represented at that stage of the NK proceedings. The only proper inference is that after having been instructed on the facts (as stated in Ma's 2nd affirmation filed therein), the legal representatives considered the legal position to be consistent with the facts known to Nicekind over this point.

19. I agree with the argument of Mr W Chan (for Nicekind) that Nicekind is not legally barred in this action from changing its position regarding this issue. However, I consider that Nicekind's position in the NK proceedings is a weighty piece of evidence in the determination of whether there is a good arguable case over this point in this action. I find that when the evidence filed herein is considered together with the evidence filed by Nicekind in the NK proceedings, such a good arguable case has not been made out. Instead, I find that the true position was that Yim was only asked by Nicekind to find someone to inject capital for the subscription of the Shares, which Yim did by locating DH for Nicekind. This is not properly an "agency" arrangement ( as that word is understood in agency law).

20. As Ma admitted in his affirmation filed herein, Nicekind became aware of the CF-DH agreement sometime in about October 1997 and he exhibited a copy of that document in his affirmation: para. 9 thereof and exhibit "MN-6". It is obvious from this document that it was signed by Yim (and a Mr Wong Tai Yung) for Chung Fai. Further, in Ma's 2nd affirmation filed herein, Ma admitted that he was aware of the CF proceedings in mid-1999 and still "did not perceive [Yim] as my [sic] [Nicekind's] agent": see para. 3 and 4 thereof.

21. Ma's 2nd affirmation filed in the NK proceedings was filed after Nicekind was made aware of the CF-DH agreement (with Yim's signature). Further, in relation to the NK proceedings, Nicekind's solicitors prepared a draft witness statement for Yim's signature (it was not signed by Yim at the end) in November 1999 confirming that Yim was never appointed by Ma or Nicekind as their agent and that neither he nor Chung Fai was Nicekind's agent. Yim's draft statement further stated that during the negotiation, Ma had not asked Yim to discuss the terms of the agreement to be entered into between Nicekind and DH and those terms were entirely matters between them. These are further evidence that Nicekind never regarded Yim to be its agent. Ma explained that he was misled because Yim lied by saying that Chung Fai was unrelated to him. I find this explanation hard to believe in view that Yim's signature clearly appears on the CF-DH agreement.

22. Having dealt with the matter without regard to the Court of Appeal decision in the CF proceedings, I now consider whether this decision should affect this issue. I do not find that it should. As Mr E Chan correctly submitted:-

(a) the "observations" in the Judgment (now relied on by Nicekind) were clearly made on the basis of the unchallenged evidence of Tai;

(b) whether Yim was Nicekind's agent was not an issue in the CF proceedings;

(c) the Courts in both Judgments only decided that Chung Fai was not DH's agent;

(d) it was unnecessary for the Courts in the CF proceedings to decide whether Yim was Nicekind's agent in order to determine the issues properly raised in therein.

In fact, in the context of the CF proceedings (taking into account particularly the way the matter was dealt with in the Judgment of the learned Recorder), the Court of Appeal probably only meant that even assuming Yim was Nicekind's agent, the "double agency" defence was not made out.

23. The Court of Appeal in the CF proceedings found that there was no agency between Chung Fai and DH. From the evidence, I do not regard there is any real difference in nature between that relationship and the one between Nicekind and Yim. Mr W Chan argued that the NK-WY agreement shows that an agency relationship existed between Yim and Nicekind. I do not agree. Just as the CF-DH agreement (providing for a "referral fee") was found by the Courts to have no effect on the relationship between Chung Fai and DH, I do not find that the NK-WY agreement should have any effect on the relationship between Yim/Chung Fai and Nicekind.

24. Further, even if the relationship between Nicekind and the Defendants can properly be called an "agency", the crucial question is what was the scope of the agency. In the light of the totality of the evidence, the "agency" was clearly limited to Yim finding someone who was willing to inject capital for subscribing the Shares.

25. Mr W Chan accepted that the "constructive trust" case should stand and fall with the "agency" case. He also fairly accepted that the Court of Appeal decision is not binding on this Court.

26. For the above reasons, I disagree with Nicekind's arguments and agree with those advanced by the Defendants over this issue.

27. Since Nicekind could not establish a good arguable case over this issue, there is no need to deal with the other issues raised herein. For the sake of completeness, however, I shall nevertheless proceed to deal with them; but it may not be appropriate to do so for all the issues because the parties have not made full oral submissions regarding them. In this regard, I am assisted to some extent by the written skeleton arguments handed in by the parties.

(1)(b) Was Chung Fai an Alter Ego of Yim?

28. From the evidence filed, Chung Fai was incorporated in May 1997 before Nicekind informed Yim of its intention to subscribe the Shares. Further, Chung Fai's records show that it has 4 shareholders, including Madam Suen Wo (Yim's wife) who holds 1 out of 5 shares. Yim was not a shareholder but one of its directors. From the evidence filed in the related proceedings, DH was introduced to Nicekind through individuals including Yim and a Mr Wong and Mr Lau of one Sunriver Technology Company Limited.

29. In these circumstances, I am far from being satisfied that there is a good arguable case that Chung Fai was a façade of Yim. I may conclude differently if it were Nicekind's case that Yim might have some interest in Chung Fai but since this case has not been put forward in such manner, it is inappropriate to deal with it further in the absence of the parties' submissions.

(1)(c) Was Nicekind Aware of the Payment of the "Referral Fee"?

30. Despite Mr E. Chan's detailed written submissions regarding this point, I do not consider it appropriate or necessary to deal with it here in the absence of oral submissions by the parties.

(2) Balance of Convenience

(2)(a) Delay

31. As stated above, according to Ma, he was aware of the CF-DH agreement since at least October 1997, and of the CF proceedings since mid-1999. The facts disclosed and relied on by Nicekind (through Ma) in this action were no different from those known to it since at least October 1997. In other words, even if Ma had been misled by Yim, Nicekind was at all material time equipped with the same set of facts which enabled it to bring this action and make the ex parte application. There was no valid reason for Nicekind to stand by and take no action until the Court of Appeal has made the "observations" now relied on.

32. I therefore find that there was a substantial period of delay prior to the ex parte application. Mr W Chan contended that mere delay is not a bar to a Mareva order. Since I have not heard the parties' submissions on this point, it is inappropriate to deal with it further here.

(2)(b) Risk of Dissipation

33. Mr E Chan submitted that the Defendants never tried to keep the CF-DH agreement secret. He argued that this (and the payment of $15 million) should therefore not be regarded as proper grounds for inferring that there is a risk of dissipation. It must be remembered that by the time when this issue falls for consideration, in all probabilities adverse findings would have already been made against the Defendants as to:-

(a) a good arguable case;

(b) other matters relating to balance of convenience.

In these circumstances, (leaving aside the issues relating to delay and non-disclosure) I would most probably have concluded that the approach in Films Rover International Ltd. v. Cannon Film Sales Ltd [1987] 1 W.L.R. 670, 680 should be adopted, namely, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been "wrong". It is highly relevant that Chung Fai is a B V I company with no known asset in Hong Kong and there is no evidence that an injunction order would cause it prejudice, such as its ordinary course of business may be jeopardised.

(3) Material Non-disclosure

34. Mr E Chan complained that Nicekind is guilty of non-disclosure regarding the following matters:-

(a) in relation to whether Yim was Nicekind's agent, Nicekind should have disclosed that it never authorized Yim to negotiate with DH, that the NK-WY agreement was about payment for Yim's referring DH to Nicekind and that Ma's alleged "misapprehension" was made after legal advice and conferences with lawyers;

(b) Yim has in the NK proceedings denied he was Nicekind's agent (and the denial was accepted by Nicekind through Ma);

(c) Nicekind/Ma has in the NK proceedings differentiated between Yim and Chung Fai.

I agree with these complaints. Further, Nicekind should also have disclosed that Ma still allegedly laboured under the "misapprehension" despite a positive allegation to the contrary made by DH in the NK proceedings.

35. Mr E Chan further complained Nicekind had filed misleading evidence relating to whether Yim could be located since the end of February 2000. For the purpose of establishing this point, Yim has (among other matters) exhibited records of his mobile phone. Mr W Chan argued that these records do not cover the precise period deposed to by Ma. Further, he submitted Ma only deposed that there was difficulty in locating Yim. With respect to Mr W Chan, the tenure of this part of Ma's affirmation is that Yim has in effect gone missing. I therefore agree with Mr E Chan's further complaint.

(4) Other Matters

36. After the conclusion of the hearing on 28 August 2000, it came to my notice that the learned Recorder found that the consideration moving from Chung Fai under the CF-DH agreement was "to guarantee that Nicekind would be able to be allotted 5 million shares" (at p. 7 of the transcript). There may be a further argument that even if Yim was Nicekind's agent, he did not obtain any secret profit because the $15 million was payable for this guarantee.

37. However, since I was able to decide this application on the ground that no good arguable case has been established, no finding is made regarding this point (since it has not been raised by the Defendants or argued by the parties). Although there was a brief discussion between the Court and Mr W Chan about the doctrine of "estoppel by convention", the same considerations apply to this issue.