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

HCA 3191/1999
(Consolidated with HCA 21961/1998)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3191 OF 1999

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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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INTRODUCTION

1. This is a claim by the Plaintiffs for reimbursement of the Defendant's contribution to subscriptions for bonus shares, shareholders loans and other expenses advanced by the Plaintiffs on behalf of the Defendant to a Malaysian company, Great Union Properties Sdn Berhad ("GUP"), pursuant to an oral agreement entered into between the 1st Plaintiff ("NW") and the Defendant ("SHKS"). The Plaintiffs' case is that NW and a listed company in Malaysia, IGB Corporation Berhad ("IGB"), entered into a 50-50 joint venture (the "Joint Venture") to purchase land and to build two hotels of 1,000 rooms and a 200 unit service apartment block at the city centre of Kuala Lumpur (the "Project"). The cost of land was MYR85 million, while the construction and finance costs of the Project were estimated to be MYR417.71 million and MYR84 million respectively. The then total cost of the whole Project was estimated to be MYR586.71 million. The Project would take two years to complete. GUP was the corporate vehicle to carry out the Joint Venture. By an oral agreement entered into between NW and SHKS in April 1990 as subsequently modified in 1991 and 1992 (collectively the "Oral Agreement"), SHKS agreed to participate in the Joint Venture by taking 25% of NW's interest in the Joint Venture, i.e. 12.5% interest of the entire Joint Venture. In due course, pursuant to the Joint Venture agreement, 50% of the issued shares of GUP was issued to the 2nd Plaintiff ("Stapleton"), a British Virgin Island ("BVI") company and wholly owned subsidiary of NW. SHKS made two payments on 11 April 1990 and 24 July 1990 and a third payment on 26 June 1992 (referred to as the "June agreement" by SHKS in its counterclaim) representing 12.5% of the cost of land for the Project. Apart from these payments, SHKS declined to pay the legal cost, stamp duty and other expenses in connection with the acquisition of the land and shares of GUP, the subscription for rights issues in GUP and its contribution to shareholders loans to GUP for the purpose of financing the Project, which had been paid by NW on SHKS's behalf. The Plaintiffs now seek to recover these reimbursements from SHKS. Mr Chan, SC, set out three routes of claim: (1) the Oral Agreement Route based on the Oral Agreement, (2) the Agency Route based on the fact that the payments had been made by NW as agent of SHKS and (3) the Estoppel by Convention Route based on the common assumption shared by NW and SHKS that SHKS was under a legal obligation to make those payments and had accepted such liability.

2. SHKS raised numerous defences. In essence, its principal defence is that there was no binding agreement between the parties. The Oral Agreement was void for uncertainty. It was conditional on approval by the Malaysian Foreign Investment Committee (the "FIC") and such approval was not forthcoming. SHKS denied it was under any contractual obligation to finance the Project or operation of the hotels because the agreement, if any, was subject to a "dai chong" (地莊) understanding, meaning that SHKS's liability was limited to 25% of the capital contribution for the purchase of the land, which was later reduced to 12.5%. The three payments amounting to 12.5% of the cost of land were advance payments made pending the conclusion of a binding contract. SHKS denied that NW was its agent authorised to make the various payments and to advance the shareholders loans on its behalf. In the alternative, if there was a valid agreement, SHKS averred that it was an agreement to purchase shares in a new company to be incorporated for a total consideration equal to 25% of the initial valuation of the cost of land for the Joint Venture. In April 1992, SHKS was not prepared to participate further in the purchase until it had secured a direct and exclusive interest in GUP and unless the GUP shares to be purchase was reduced by 50%. In order to secure those objectives, NW and SHKS agreed that SHKS would contribute to the purchase by taking a direct interest in 12.5% of the share capital of GUP, that Stapleton would hold those shares on trust for and/or as nominee of SHKS (the "June agreement"). In breach of the June agreement, NW failed, among its other obligations, to procure Stapleton to execute a deed of trust in favour of SHKS in relation to the GUP shares and to seek FIC approval for the proposed transfer of the beneficial ownership of the shares to SHKS. Hence, SHKS counterclaimed for rescission of the June agreement, damages for breach of contract and for misrepresentation and return of all money paid. In addition, as against NW, SHKS claimed an indemnity in respect of its liability to NW and Stapleton. Lastly, SHKS pleaded limitation.

THE FACTS

3. The case of the parties stands or falls on my finding of facts. This case is concerned with events which occurred over a period of nine years. The parties have turned out a large volume of documents generated over these years. The respective party's case depends partly on how those documents are to be interpreted and what inferences are to be drawn and partly on my finding of credibility of the parties' witnesses. The facts as I outline below are based primarily on documents and on the witnesses' notes written on those documents which are not disputed by the parties and on the oral testimony of the Plaintiffs' witnesses whose evidence I accept as credible. Where necessary, I shall deal with separately the conflicting oral testimony between the Plaintiffs' witnesses and the Defendant's witnesses in respect of certain major disputes of facts.

April 1990: The 1990 Oral Agreement

4. At the time, the relation between New World group of companies ("NW Group") and Sun Hung Kai group of companies ("SHK Group") was very close. The two groups of companies had common, presumably non-executive directors. The managing director of NW Group, Henry Cheng, was also a non-executive director of SHK Group. He is a close friend of Tony Fung, a director of SHK Group and the chairman of SHKS. They met occasionally at social meetings.

5. In early 1990, the hotel industry was prosperous. NW's negotiation with IGB became known to SHK Group and was also discussed within the Executive Committee of the SHK Group. SHK Group considered the Joint Venture was a good investment and its managing director, KB Fung reported that he had potential investors lined up to invest in the Joint Venture. In April 1990, Tony Fung expressed interest in participating with NW in the Joint Venture to Henry Cheng. The two of them discussed face to face and over the telephone on a number of occasions, during which information about the Joint Venture and the Project were supplied to Tony Fung. These discussions went on at the same time as NW's negotiation with IGB. Eventually, over the telephone, an agreement was reached whereby SHK Group would acquire 50% of NW's interest in the Joint Venture. This Oral Agreement was not reduced into writing as Henry Cheng had known Tony Fung and his father for 30 years and trusted him for his words. At the time it was not decided which member of the SHK Group was to participate in the Joint Venture. Eventually, it was decided that SHKS was to participate. Thereafter, the Oral Agreement was left to be carried out by Paul Tong, the general manager of NW and John Yip, the executive director and chief operation officer of SHKS. Except for the existence of the Oral Agreement, the above background is not in dispute.

6. The major dispute of facts as between the parties relates to the terms of the Oral Agreement. According to Henry Cheng, he explained to Tony Fung that the parties to the Joint Venture would have to pay for the cost of the land and the cost of financing the Project according to the proportion of their investment and Tony Fung agreed. According to Tony Fung, the discussion was about purchase of shares in GUP and that in his discussion with Henry Cheng, he used the term ("dai chong") which means "table limit", a term well understood by tin-kau or card players, to define SHKS's financial exposure in the Joint Venture. Thus, his understanding was that SHKS's liability was limited to the money it paid in respect of 25% (which was later reduced by agreement to 12.5%) of the land cost and SHKS would not be required to fund the future construction and operational costs of the hotels. For reasons which I shall give in the later part of this judgment, I reject Tony Fung's and John Yip's evidence about the "dai chong" understanding and accept Henry Cheng's evidence.

April - November 1990: Two initial payments by SHKS

7. NW and IGB entered into a memorandum of agreement in respect of the Joint Venture (the "Memorandum") on 11 April 1990. This Memorandum was subject to the execution of a shareholders agreement to be entered into by the parties incorporating the details of the Joint Venture and subsequent financing and development of the land. It was also a term of the Memorandum that upon execution of the Memorandum, NW should pay IGB MYR4,250,000 being its share of 50% of the deposit to be paid for the acquisition of the land for the Project and a like amount upon execution of the shareholders agreement between NW and IGB (the "NW/IGB Shareholders Agreement"). On the same day, John Yip sent a cheque to NW in the amount of $6,075,587.50 (i.e. MYR2,125,000) being SHKS's share of contribution to the initial deposit.

8. Eventually on 20 July 1990, NW and IGB concluded their negotiation on the terms of the NW/IGB Shareholders Agreement and executed the agreement. GUP was used as the investment vehicle for carrying out the Joint Venture. The agreement was conditional upon approval by the shareholders of IGB in general meeting, the board of directors of NW and FIC of the acquisition by NW from IGB of 50% of the shares of GUP. On 23 July 1990, Henry Cheng sent a copy of the NW/IGB Shareholders Agreement by fax to Peter Fung, another executive director of SHKS. SHKS promptly responded on the following day by forwarding a cheque to NW in the amount of $6,102,362.50 (i.e. MYR2,125,000) being SHKS's contribution to the second deposit which NW was obliged to pay IGB under the terms of the Memorandum towards the acquisition of the land for the Joint Venture.

9. On 13 November 1990, pursuant to the NW/IGB Shareholders Agreement, NW nominated two of its directors and KB Fung of SHKS as members of the Executive Committee of GUP. The nomination was copied to KB Fung. The first meeting of the Executive Committee was held on 21 November 1990 at NW's office. KB Fung did not attend but was given a copy of the minutes of the meeting.

November 1990 - December 1991: FIC approval

10. In November 1990, NW and IGB instructed D&C Mitsui Merchant Bankers Bhd ("Mitsui") to seek FIC's approval in respect of, inter alia, the proposed acquisition by NW of 50% of the shares of GUP. In the meantime, NW and IGB discussed about the different types of investment vehicle by means of which NW and SHKS would participate in the Joint Venture, including the use of a BVI company. On 8 March 1991, FIC approved NW's acquisition of 50% of the shares of GUP.

11. On the instruction of NW, Mitsui sought clarification from FIC about NW's intended transfer of 50% of its GUP shares to SHKS. On 25 March 1991, Mitsui reported to GUP, quoting the views of officials of FIC as follows. FIC approval was not required for the transfer of NW's GUP shares to a subsidiary of NW, but FIC had to be informed. If the transfer was to an outside party, FIC approval was required, but that would be a matter of formality and procedure as FIC had already approved the acquisition of the GUP shares by a foreign party, namely NW.

12. Following that, NW's solicitors, Messrs Robert W H Wang & Co ("RW") and IGB's solicitors, Messrs Chong Harcharan Hashim ("CHH") reached agreement that the shares of GUP would be held equally by IGB and Stapleton. In turn, the shares of Stapleton would be held as to 50% by SHKS and as to the remaining 50% by Barret Developments Ltd, another BVI company wholly owned by NW. They also agreed that FIC approval would be sought for the disposal of the GUP shares as above before 13 May 1991 and if FIC approval was not granted, the NW/IGB Shareholders Agreement would be rescinded.

13. On 16 April 1991, the board of directors of NW approved the NW/IGB Shareholders Agreement, subject to an amendment to sub-clause 16.2 about alternative financing. On 17 April 1991, RW wrote to NW to request for SHKS's corporate and finance information to be furnished to FIC in connection with the application for FIC approval. On 23 April 1991, NW requested SHKS to supply the information. As shown in NW's internal fax dated 22 April 1991, NW was eager to process the FIC application with regard to SHKS's participation urgently. In the meantime, the shareholders of IGB approved the NW/IGB Shareholders Agreement. So as at that stage, NW and their solicitors were working towards the purpose of making SHKS a party to the Joint Venture and what was left was for SHKS to supply its corporate and finance information for FIC approval.

14. However, SHKS reacted differently. SHKS did not respond to NW's or RW's requests for corporate and finance information. On 6 May 1991, Osborne of RW wrote to SHKS pressing for the information. As recorded in Osborne's fax of 9 May 1991 to Paul Tong, he had a discussion with John Yip during which John Yip indicated that he had consensus with Alex Chow of NW that it would not be appropriate to make the FIC application in respect of SHKS's participation at that stage and hence SHKS was not supplying the information. On 13 May 1991, John Yip wrote a note on NW's fax dated 23 April 1991 to the like effect. He wrote:

"1. Spoken to Alex Chow and Paul Tong of New World and Christopher Osborne of Robert Wang & Co.

SHK has never indicated that it would go into this venture as a principal. The present intention is still to download its commitments by selling to its clients, although no such likelihood in the near future.

Agree with Alex Chow and Paul Tong that New World would hold in trust for SHK and application will be made to the Malaysian FIC when investors have committed to the project."

Again, John Yip made a similar note on 30 May 1991 on RW's letter dated 6 May 1991 to the effect that NW would hold the GUP shares on trust for SHKS and the application to FIC would be delayed until the ultimate investor was found.

15. In the meantime, SHKS stepped up its effort looking for a buyer for its interest in the Joint Venture. Since 25 April 1991, SHKS had been negotiating with American International Assurance Co Ltd ("AIA") for downloading 80% of its interest, i.e. 20% of the interest in the whole Joint Venture for MYR17 million. But the negotiation was unsuccessful. Given the very favourable advice from FIC officials and in view of the active steps taken by NW and its solicitors in processing FIC approval for SHKS's participation and the on going negotiation between SHKS and AIA at the time, I find that the application for FIC approval was deferred at the request of SHKS until it was able to find a suitable buyer for the investment. I also find as a fact that since April 1991, the agreement between NW and SHKS was altered to the extent that NW was to hold the shares of GUP acquired by SHKS on trust for SHKS.

16. On 3 October 1991, Paul Tong requested SHKS to remit its contribution to shareholders loan of MYR160,000. SHKS did not respond. NW made the advance on 9 October 1991 in respect of its own as well as SHKS's portion of the shareholders loan.

January - April 1992: Revaluation of the land cost

17. On 31 January 1992, NW demanded $278,949.30 from SHKS as its contribution to the legal fees. SHKS did not respond.

18. On 12 February 1992, GUP wrote to NW referring to their agreement to review the land costs from MYR85 million to MYR94.5 million which would involve an increase in issued share capital of MYR9.5 million. The effect was that NW would have to subscribe for more shares in GUP in the value of MYR4.75 million to meet its share of the revised land cost.

19. On 6 March 1992, IGB served a notice pursuant to Clause 6A.2.1 of the NW/IGB Shareholders Agreement requiring NW to pay the balance of its capital contribution of MYR34 million. Accordingly, on 11 March 1992 NW alerted SHKS of its liability to contribute MYR17 million by 19 April 1992. NW also reminded SHKS of its outstanding contribution to the legal fees.

20. On 7 April 1992, NW informed SHKS that the land cost had been re-valued to MYR94,500,000 as a result NW would have to subscribe for 47,250,000 new shares in GUP, which would be held by Stapleton to be jointly owned in equal shares by NW and SHKS. NW informed SHKS that the amount payable by SHKS was MYR19,375,000 in respect of its 25% participation in the Joint Venture and that RW would be preparing a draft shareholders agreement between NW and SHKS. The sixth draft NW/SHKS shareholders agreement was also enclosed. SHKS did not respond.

April - June 1992: SHKS's reduced participation, 1992 Oral Agreement, SHKS's payment of balance of 12.5% of its interest in the Joint Venture

21. In the meantime, SHKS was unsuccessful in securing investors for its 25% interest in the Joint Venture. Since 12 March 1992, the Executive Committee of SHK was considering reduction of its participation in the Joint Venture by half. Subsequently, Tony Fung discussed with Henry Cheng and obtained his agreement for SHKS's participation in the project be reduced to 12.5%. According to Tony Fung, because of the revaluation of the land costs, there was a discrepancy in the price originally agreed upon and as a result SHKS wished to reduce its holding and the term "dai chong" was again used in his discussion with Henry Cheng on this occasion. This was denied by Henry Cheng. I accept Henry Cheng's evidence and reject Tony Fung's. As a result of the discussion, NW wrote to SHKS on 27 April 1992 advising SHKS that its participation was reduced to 12.5% and the amount payable by SHKS was reduced to MYR7,562,500. This amount was based on the revised land value of MYR94,500,000 and not the original value of MYR85,000,000. NW also informed SHKS that Stapleton would be holding the GUP shares as the nominee for SHKS and NW.

22. On 5 May 1992, Carson Wai of NW sent a copy of the draft NW/SHKS shareholders agreement to SHKS for comment. On the same day, he discussed with John Yip concerning FIC approval in respect of the transfer of 12.5% shares in GUP to SHKS or its nominee. He then followed up with a fax message to John Yip requesting corporate and finance information of SHKS or its nominee which was intended to hold the 12.5% shares in GUP. The fax also contained a reminder demanding payment of the outstanding amount of $24,005,218.09 due by SHKS. This amount included SHKS's share of the legal fee and shareholders loan overdue and additional legal fees and shareholders loan payable. SHKS did not respond.

23. On 7 May 1992, Paul Tong updated SHKS with the progress of the Joint Venture. He forwarded to John Yip a number of documents including a progress report of the Project setting out the progress up to 30 April 1992 (the "Progress Report") and a facility letter from Bank Bumiputra Malaysia Berhad. Paragaraph 7 of the Progress Report stated unequivocally that NW and SHKS would be required to contribute to 50% of the shareholders loans needed to finance the Project. This report also included references to the amount outstanding from SHKS, the request to SHKS for corporate and finance information of SHKS or its nominee for the purpose of seeking FIC approval, an estimate of the development and financing costs of MYR469,100,000, an estimated bank financing of MYR326,000,000 and an estimated shareholders loan of MYR132,000,000 needed to finance the Project.

24. On 29 May 1992, during a telephone conversation, Carson Wai reminded John Yip of SHKS's contribution of $24,005,218.09. John Yip promised to settle the payment soon, but no payment was forthcoming.

25. On 17 June 1992, Paul Tong issued a written reminder to John Yip. On 26 June 1992, John Yip instructed SHKS's accountant to prepare a cheque in the amount of $23,141,250 only, being the balance for the 12.5% of GUP shares and he wrote that he would deal with the reimbursement of expenses paid by NW separately. Then he telephoned Carson Wai on the same day and told him that he would be sending a cheque for $23,756,955.59 being the balance for the 12.5% of GUP shares and 25% of the five items of disbursements. But instead, John Yip wrote a letter to Paul Tong enclosing a cheque in the amount of $23,141,250 only without mentioning why SHKS's contribution to the five items of expenses were not paid and without denying liability therefor either. He also noted in the letter that Stapleton would be holding the GUP shares as SHKS's nominee.

July - December 1992: GUP's rights issue

26. On 1 July 1992, Paul Tong wrote to John Yip and advised him of GUP's rights issue of 5,500,000 new shares so as to bring GUP into the MYR100 million league and as a result SHKS would have to subscribe for 687,500 shares to make up for its 12.5% interest in GUP. He also advised that SHKS would have to contribute $2,120,937.50 for the rights issues, $190,030 for shareholders loan, $517,277.40 outstanding legal costs and $192,843.75 being interest for two months on the sum of $23,141,250 at 5% per annum. The total amount demanded was $3,021,088.65. SHKS did not respond. According to John Yip, he reported the rights issue to Tony Fung and told Tony Fung to raise the matter with Henry Cheng. But in his evidence Tony Fung said he was not aware of the rights issue. There is no reason why John Yip would not have reported such an important matter to Tony Fung. I find that Tony Fung was being evasive and was trying to deny knowledge of the rights issue so as to avoid having to explain SHKS's lack of protest under the "dai chong" understanding to NW's demand for contribution to the rights issue to maintain its 25% interest in the Joint Venture.

27. On 16 September 1992, Paul Tong wrote to John Yip again and reminded him of the payment due. The amount demanded was increased to $3,034,951.24 to take into account the additional interest accrued in the meantime.

28. As the project progressed, GUP informed NW that it required additional funding by way of shareholders loans. On 28 September 1992, Paul Tong wrote to John Yip informing SHKS that three such advances in the amount of MYR592,500, MYR849,500 and MYR1,166,750 would be required respectively by 8 October 1992, 8 November 1992 and 8 December 1992. To comply with Malaysian company law, IGB's contribution would be made by way of issue of preference shares. SHKS again did not respond. In due course, NW made the advances on its behalf and on behalf of SHKS. That concluded the events in 1992.

January 1993 - April 1995: SHKS's lack of response

29. On 11 January 1993, SHKS requested NW to give an audit confirmation of SHKS's 12.5% interest in GUP. NW ignored that request, understandably because SHKS never paid for the rights issue to make up the 12.5% interest and the shareholders loans and other expenses.

30. No communication between NW and SHKS was documented in 1993 except for a letter dated 10 May 1993 and another dated 23 November 1993 from NW to SHKS. In the letter of 10 May 1993, Carson Wai wrote to John Yip mentioning that NW representing SHKS made certain shareholders loans to GUP and that it was agreed that the Project would be funded by way of issue of preference shares to IGB and by way of shareholders loans by "NW (and SHKS)". SHKS did not respond to that letter. During 1993, advances were made by NW on behalf of itself and SHKS. On 23 November 1993, Paul Tong wrote to John Yip stating that SHKS had only made three contributions totalling $35,319,200 and setting out a list of outstanding payments due from SHKS in respect of their contributions to the rights issue, shareholders loans, expenses and interest. The amount then allegedly due was $16,609,413.23. Again SHKS did not respond.

31. Shareholders loans continued to be made by NW as the Project progressed. On 11 January 1994, Paul Tong wrote a similar letter to John Yip informing him additional shareholders loans had been made and the total amount then due to NW was increased to $23,363,430.47. On 28 February 1994, Paul Tong again wrote a similar letter to John Yip. The amount then outstanding was increased to $26,639,868.58. Again SHKS did not respond. On 7 April 1994, Paul Tong wrote to John Yip again. This time the amount outstanding was increased to $29,731,813.14. Shareholders loans continued to be made to GUP by NW in the meantime.

March 1995: Carson Wai/John Yip meeting, SHKS's admission of liability

32. On 9 March 1995, Carson Wai and John Yip had a lunch meeting. In his file note kept for that meeting, John Yip wrote that he told Carson Wai "that the principle all along was that (1) SHKS will take 12.5% of the investment project and its risk and (2) NW would provide the necessary funding for SHK in excess of the project loan at the rate of interest to be agreed." The note also recorded his suggestion to Tony Fung to discuss with Henry Cheng that the interest to be charged by NW should be at NW's cost of fund plus a small margin. Henry Cheng did not recall Tony Fung had ever talked to him about interest. In the meantime, NW continued to make shareholders loans on its own behalf and on behalf of SHKS to finance the Project.

March 1996: Carson Wai/John Yip meeting

33. A year later in March 1996, the Fung family which was the controlling shareholders of SHKS was negotiating with Allied Properties (HK) Limited ("Allied Properties") for the sale of their controlling shares in SHKS. By that time, as SHKS's arrears had become very substantial, Carson Wai reported that to Henry Cheng. According to Henry Cheng, he discussed with Tony Fung who acknowledged the obligation to make the payments and agreed to complete the shareholders agreement with NW. The evidence of Tony Fung is that he had no recollection of this discussion with Henry Cheng. I have no doubt in Henry Cheng's evidence because this discussion was referred to in a contemporaneous letter written by Carson Wai to John Yip on 15 April 1996. In that letter Carson Wai mentioned the discussion between Tony Fung and Henry Cheng in which it was alleged that Tony Fung had agreed that SHKS would sign the shareholders agreement. Consistent with that allegation, Carson Wai enclosed a draft shareholders agreement, which was the same copy as the one sent in May 1992 and requested payment of SHKS's outstanding contribution. Tony Fung's agreement had been consistently referred to in NW's subsequent letters to SHKS but was never denied by SHKS. If Tony Fung had not so agreed and if Tony Fung had told John Yip about the "dai chong" understanding, it would be most surprising that John Yip did not bring this letter to Tony Fung's attention and Tony Fung did not raise the matter with Henry Cheng.

34. At about that time, Tony Fung told Henry Cheng that there might be a possibility of a sale of SHKS's interest in the Joint Venture and/or a restructuring of the SHK Group and that payments would be made to NW once those matters were finalized. He told Henry Cheng to wait.

35. A month later on 14 May 1996 following a telephone conversation with John Yip, Carson Wai sent SHKS supporting evidence of the total contributions made by NW and reminded SHKS of the payment and requested their comments on the draft NW/SHKS shareholders agreement. This is consistent with events progressing in the direction as intimated by Tony Fung to Henry Cheng.

36. On 28 May 1996, John Yip had a lunch meeting with Carson Wai and Christopher Lam in the Dynasty Club. According to Carson Wai and Christopher Lam, John Yip apologised for the non payment and explained that the delay was due to SHK's plan to either sell all or part of its interest in the Joint Venture or to undertake a group restructuring. He acknowledged SHKS's obligation to the contributions and asked for documents about the Joint Venture. On 6 June 1996, as requested, Christopher Lam forwarded to SHKS a number of audited reports and accounts of GUP and construction progress reports in respect of the Project and reminded SHKS of the outstanding payment. On 11 June 1996, at John Yip's request, Christropher Lam forwarded some financial reports in respect of the Project to John Yip and again reminded SHKS of payment. John Yip's evidence was that it was just a casual lunch and when Carson Wai and Christopher Lam talked about the Joint Venture he stopped them saying it was a matter to be discussed between Henry Cheng and Tony Fung and he denied requesting for the documents.

37. Mr Strachan, QC, submitted that had there been such admission by John Yip, Carson Wai or Christopher Lam would have mentioned it in their letters and it was the absence of such an acknowledgement which caused them to instruct RW to draft the NW/SHKS shareholders agreement on an urgent basis. I have no difficulties in dismissing John Yip's evidence as being incredible. It is incredible that with about $80 million contribution outstanding from SHKS, these executives from NW just gathered for a casual lunch with the chief executive of SHKS without raising the question of repayment and that Christopher Lam would send John Yip unsolicited reports and documents and marked them as "as requested". I find that these reports, documents and draft shareholders agreement were sent at John Yip's request and as a result of his acknowledgement of SHKS's liability and his intimation about the imminent restructuring of SHK Group.

38. In the meantime, on 31 May 1996, the sale of the Fung family's shares in SHKS to Allied Properties was announced.

July - August 1996: Change of management in SHKS, Henry Cheng's two lunch meetings with SHKS's new management

39. On 5 July 1996, Henry Cheng hosted a lunch for Tony Fung, Lee Ming Tee and his son, Lee Seng Hui, both of Allied Properties at the Kaetsu Japanese Restaurant. When he raised the question of the outstanding payment due from SHKS, Lee Ming Tee acknowledged SHKS's liability and promised to pay the outstanding arrears. Despite that promise, the arrears remained outstanding. On 8 August 1996, Henry Cheng hosted another lunch for Tony Fung, Lee Ming Tee and Lee Seng Hui at the Grand Hyatt Hotel. During the lunch, Lee Ming Tee again acknowledged SHKS's liability to pay the outstanding shareholders loans but requested to defer the completion of the NW/SHKS shareholders agreement for the time being until SHKS's restructuring was completed.

40. As for the first lunch meeting, Lee Ming Tee said he had been acquainted with Henry Cheng for a number of years. He thought the purpose of Henry Cheng hosting the lunch was to show that Henry Cheng meant no discourtesy to the new management of SHKS for having resigned as a director of SHKS in June 1996 and to provide an occasion for Lee Ming Tee to formally introduce his son to Henry Cheng. He said because of a pending prosecution against him, he resigned as director of Allied Properties and did not take part in its management. Both Lee Ming Tee and Lee Seng Hui said that the Project was just casually and briefly mentioned towards the end of the lunch by Henry Cheng asking what was the intention of the new management of SHKS towards the Project and that Lee Seng Hui responded that he would revert to NW through the proper channel.

41. As for the second lunch meeting, Lee Ming Tee and Lee Seng Hui said that Henry Cheng arranged the lunch for the purpose of discussing possible future co-operation between SHKS and NW Group. They said that after the lunch Henry Cheng mentioned the Joint Venture and Lee Seng Hui replied that he would ensure that SHKS would consider it and would respond through proper channel.

42. Mr Strachan, QC, submitted that it would be ludicrous to suggest Henry Cheng who professed himself to be busy and unconcerned as to details would specifically arrange a lunch meeting to discuss a debt of $80 million. He also queried why Henry Cheng could recall the details of these lunch meetings but not the details of the other meetings referred to in RW's letters. I do not think that ludicrous at all. Henry Cheng became aware of SHKS's growing indebtedness. A debt of $80 million was not anything he would be unconcerned especially in view of the change in management of SHKS. He arranged the meetings for a purpose, i.e. to press for payment of $80 million and would have no difficulties in recalling the content of the conversation which was the sole purpose of the two meetings, whereas the meetings referred to in RW's letters were routine meetings which took place ten or more years ago.

43. Mr Strachan, QC, submitted that the Allied Properties group of companies (the "Allied Group") had just taken over the management of SHKS and was unlikely to have knowledge of such liability or to admit liability for such a debt. To that suggestion, Henry Cheng replied succinctly well under cross-examination by referring to his recent take over of New Bus Company Limited. I agree with him that any sensible management taking over an undertaking of that size must have studied the books and accounts of the undertaking before bidding for the take over and must be aware at least in general terms the indebtedness, assets and major contracts of the undertaking. The Lees must have done the same. When the question of the indebtedness was raised, the natural response would have been one of surprise or denial if the Lees had no knowledge of it at all or, as in the present case, an acknowledgement if they had knowledge of and accepted the indebtedness.

44. I consider Henry Cheng's evidence credible and the Lees' evidence inherently incredible. Henry Cheng had no previous business or personal relationship with the Lees or the Allied Group before and was not interested in having any business relations with Lee Ming Tee in view of the pending prosecution against him and his negative public image. All former non-executive directors of SHKS under the Fung's regime had resigned. If indeed Henry Cheng wished to show courtesy to Lee Ming Tee for having so resigned, he could have given Lee Ming Tee a telephone call instead of hosting him for lunch, after all he never had any occasion to have lunch with Lee Ming Tee before. If Henry Cheng was contemplating future business relationship with SHKS, he would not have resigned his directorship from SHKS in June. Lee Ming Tee's account of discussion about future business relationship was wholly devoid of content and is incredible.

45. NW was owed very substantial sums by SHKS which was formerly owned and controlled by Henry Cheng's 30 year old friend. Now that management had changed and SHKS was placed under the control, to his belief, by Lee Ming Tee whom he had no business relations before, not to mention to his discredit, Lee Ming Tee's impending criminal prosecution. To say that for all the trouble of having a lunch with the Lees with whom he never had lunch before, Henry Cheng merely asked casually towards the end of the two lunch meetings about the Joint Venture would be stretching inherent probability beyond its limits, even assuming Henry Cheng to be a very traditional and subtle Chinese businessman. It is incredible that Henry Cheng was not the least concerned about SHKS's outstanding $80 million debt and hosted the lunches in order to show courtesy to Lee Ming Tee and his son and to explore the possibility of future co-operation with Allied Properties or the Allied Group and not for the purpose of chasing SHKS for its outstanding payment.

46. Henry Cheng's evidence is also corroborated by Carson Wai. According to Carson Wai, Henry Cheng had told him that during the July lunch meeting, Lee Ming Tee promised to settle the outstanding arrears owed by SHKS and instructed him to follow up with SHKS. Hence, he and Christopher Lam had been chasing John Yip for repayment. As corroborated by Christopher Lam's letter to John Yip dated 30 July 1996, he forwarded more reports and financial documents, cash flow projection and summary of contributions to SHKS at the request of John Yip and again reminded SHKS of payment of its 25% contribution. This is consistent with NW's case that it was pressing for payment and SHKS was at least putting up a show of seriousness towards NW's claim. I reject the Lees' evidence as incredible and accept the evidence of Henry Cheng about the two lunch meetings.

August 1996 and thereafter: SHKS's conduct under the new management

47. Shortly after the second lunch meeting, TH Chung of SHKS wrote to Christopher Lam on 23 August 1996 saying that he had taken over the role of John Yip and offered to meet with him to discuss issues relating to GUP. On 3 September 1996 and 1 October 1996, NW forwarded to SHKS a summary of its outstanding contributions as at 31 August 1996 and 18 September 1996 respectively and reminded SHKS for payment. TH Chung did not dispute liability but requested for a copy of SHKS's own letter dated 26 June 1992 which accompanied SHKS's payment of $23,141,250. Accordingly a copy of the letter was sent to SHKS on 9 October 1996. On 27 November 1996 and again on 9 December 1996, NW informed SHKS of its outstanding contribution and requested for payment. SHKS did not respond.

48. On 9 December 1996, TH Chung and David Hui attended Stapleton shareholders meeting. By that time, the two hotels under the Project were completed and in operation. At the meeting, Carson Wai told SHKS that Henry Cheng did not accept SHKS's proposal to convert the amount of its investment to-date into a relative percentage shareholding in Stapleton and insisted on SHKS maintaining its 25% shareholding in Stapleton. NW confirmed that the amount then owing by SHKS was $97,169,549.53 but agreed to wait until SHKS had completed its re-structuring. A minute of the meeting recording the above discussion was sent to SHKS under cover of a letter dated 30 December 1996. Again, SHKS did not respond.

THE "DAI CHONG" UNDERSTANDING

49. This is SHKS's principal defence. Only two persons were involved in the negotiation, Henry Cheng on the part of NW and Tony Fung on the part of SHKS. This is the typical case of one man's word against another. Counsel critically commented on the credibility of these two witnesses. I shall assess their credibility on the basis of inherent probability.

Criticism of Henry Cheng's credibility and NW's evidence

50. Mr Strachan, QC, took a pleading point. He submitted that the Plaintiffs' pleaded case according to the statement of claim is that SHKS would take up "half of NW's interest" in the Project and no mention was made of the fact that SHKS would have to pay the costs of construction according to the proportion. Hence, Mr Strachan, QC, submitted that Tony Fung had not made any commitment that SHKS would fund a proportion of the costs of the Project and that Henry Cheng's evidence is incredible. With respect, that is an unduly restrictive interpretation of the statement of claim. "Half of NW's interest" must necessary include half of NW's obligation to fund the cost of the Project under the NW/IGB Shareholders Agreement. Indeed the rest of the statement of claim makes it amply clear that the Plaintiffs are seeking reimbursement of the various shareholders loans NW advanced on behalf of SHKS or the specific performance by SHKS of its obligation under the Oral Agreement.

51. Mr Strachan, QC, submitted that Henry Cheng's evidence was unimpressive. He argued that it is inherently unlikely that Henry Cheng would have told Tony Fung that SHKS would have to finance the cost of the Project when the contemporaneous documentation showed that it was then anticipated that the costs would be financed by third-party financing. I do not think that a fair interpretation of Clause 16.2 of the NW/IGB Shareholders Agreement which provided that where bank financing was not available or not adequate the parties shall contribute to the financing by way of shareholders loans. He criticised that Henry Cheng was inconsistent in his understanding of the words "equity funding" in relation to shareholders loan and share capital. I do not agree as the term is capable of a number of meanings depending on the context. He also referred to the many correspondences from Osborne, NW's then solicitor, addressed to the attention of Henry Cheng referring to his conversations with Henry Cheng and Henry Cheng's discussion with IGB about FIC approval for NW to dispose of some of its shares to SHKS. He criticised Henry Cheng's failure to recollect those conversations or the letters. Henry Cheng explained that those letters were passed onto his general manager, Paul Tong, for action. It is not incredible for top management to delegate such detailed executive functions to his managers. It is not inconceivable, given the lapse of time, the 825 hotels NW Group acquired the year before and the large number of projects Henry Cheng had to be concerned with at the time, that Henry Cheng could not now recall his conversations with Osborne on such routine matters. I do not think these minor blemishes damage Henry Cheng's credibility.

52. Mr Strachan, QC, referred to Lee Seng Hui's evidence that Peter Fung had told him that there was no agreement to contribute to shareholders loans and to Peter Fung's evidence that he was unaware of any commitment by SHKS to fund the Project. He emphasised strongly that these evidence went unchallenged by the Plaintiffs and must be taken to have been accepted by the Plaintiffs as truthful. He relied on the cases of Browne v Dunn (1894) 6 R 67 and Kaiful Investments Limited v The Commissioner of Inland Revenue (Unreported) 4 April 2002 and Deepak Fertilizers v Davy McKee (Unreported) 12 July 2002. Obviously, this evidence is in dispute. I do not think the Plaintiffs could be unduly criticised for not cross-examining Peter Fung on something which Lee Seng Hui alleged to have been said by him. In any event, both Peter Fung and KB Fung were not involved in the negotiation of the Oral Agreement, did not have first hand knowledge of the agreement between Tony Fung and Henry Cheng and were not the persons responsible for carrying out the agreement. More importantly, whatever might have been their understanding of SHKS's liability was not borne out by the documents and notes made by John Yip who was the chief operation officer of SHKS responsible for SHKS's performance under the Oral Agreement.

SHKS never raised "dai chong" understanding in response to NW's demands

53. NW had been making repeated demands for contribution to the shareholders loans and reimbursement of the expenses consistent with Henry Cheng's evidence of what had been agreed with Tony Fung. NW's demands started on 3 October 1991 when Paul Tong requested SHKS to contribute to the first shareholders loan of MYR160,000 which had been requested by GUP. On 5 May 1992, Carson Wai demanded reimbursement by SHKS of the expenses and contribution to the first shareholders loan which had been advanced by NW on SHKS's behalf and informed SHKS of the amount of the second shareholders loan to be advanced. On 7 May 1992, Paul Tong sent SHKS the Progress Report setting out the estimated construction and operation costs which would have to be funded by shareholders loans from NW and SHKS. SHKS had full knowledge of the basis of NW's demand but did not raise any objection on the basis of the "dai chong" understanding.

54. During the two telephone conversations with Carson Wai on 29 May 1992 and 26 June 1992 when NW's demand was discussed, John Yip did not raise the question of "dai chong". Quite on the contrary, during the second of these telephone conversations, he told Carson Wai that he would be sending a cheque for $23,756,955.59 being the balance of the 12.5% of GUP shares and 25% of the five items of expenses. In its letter dated 26 June 1992 enclosing payment for the balance of the 12.5% of the GUP shares, SHKS confirmed the 1992 agreement under which Stapleton will be holding the GUP shares as SHKS's nominee but nothing was mentioned about the "dai chong" understanding.

55. For the nineteen months from September 1992 to April 1994 in no less than ten letters NW had been demanding or reminding SHKS for contribution to the rights issue and various shareholders loans advanced in the meantime. In these letters, it was unequivocally clear that NW was alleging that it was making shareholders loans on behalf of SHKS. The amount demanded increased from $3,034,951.24 in July 1992 to $29,731,813,14 in April 1994. SHKS did not give a single response to dispute its liability. The "dai chong" understanding was never raised in any correspondence from SHKS or in any of the meetings between John Yip and Carson Wai or between Henry Cheng and Tony Fung. SHKS's silence is wholly inconsistent with there being any "dai chong" understanding between the parties.

56. With the imminent change in SHKS's management in mind, NW became more anxious in seeking to recover the outstanding contributions from SHKS. It began with Henry Cheng's meetings with Tony Fung in March or April 1996 when Tony Fung agreed to sign the NW/SHKS shareholders agreement and to pay the outstanding contributions. Tony Fung never raised the "dai chong" understanding with Henry Cheng.

57. That meeting was followed by Carson Wai's letter to John Yip dated 15 April 1996, in which NW demanded repayment and quoted an interest rate of 9.5% per annum. That was further followed by four other letters of demand up to 30 July 1996. SHKS did not respond to any of those letters and did not raise the "dai chong" understanding. Instead John Yip arranged a meeting with Carson Wai and Christopher Lam in the Dynasty Club on 28 May 1996 during which he apologised and asked for copies of documents relating to the Joint Venture. Obviously, he was stalling for time waiting for his handing over to TH Chung in August 1996. Neither did he mention this "dai chong" understanding to TH Chung in his handing over nor did he raise this "dai chong" understanding in response to NW's demands made during those four months before he left SHKS. This casts serious doubts on the credibility of John Yip's evidence that Tony Fung had informed him about the "dai chong" understanding with NW.

58. At a higher level, on 5 July 1996 and 8 August 1996, Henry Cheng hosted two lunches for Tony Fung, Lee Ming Tee and Lee Seng Hui. On the evidence of Henry Cheng which I accept, SHKS's liability to the contributions was raised. Lee Ming Tee accepted liability, while Tony Fung who was present on both occasions, did not deny SHKS's liability on the basis of the "dai chong" understanding.

59. After the new management took over, NW made three further demands for contributions from September to November 1996. SHKS did not respond. Instead, during the shareholders meeting of Stapleton on 9 December 1996, TH Chung, on behalf of SHKS offered to convert SHKS's investment into a relative percentage shareholding in Stapleton. This is an implied admission of SHKS's liability to contribute to shareholders loans by offering to offset that liability against its shares in GUP held on trust for SHKS by Stapleton. Again, the "dai chong" understanding was not raised by SHKS.

60. Thus under its new management, SHKS behaved in exactly the same way as it did under Tony Fung's regime. The "dai chong" understanding was never raised and SHKS never disputed its liability to make contributions to shareholders loan and to pay interest. The "dai chong" understanding was not pleaded in its defence until its amendment in March 2002, two and half years after the defence was first filed. Obviously, the "dai chong" understanding had not been raised by Tony Fung or Peter Fung in their many meetings with Arthur Dew between June 1996 and December 1998. Were there such an understanding, it would be most surprising that it was not discussed or raised when there was a $115 million claim hanging over the head of SHKS at the time.

61. In explaining SHKS's lack of response to NW's various demands for payment, Tony Fung and John Yip were shifting responsibility to one another. According to Tony Fung, John Yip never showed him the demand letters from NW, never mentioned the ever increasing amounts that NW had been demanding time after time, and accordingly, he never instructed John Yip to respond to NW. But, according to John Yip, whenever he received demand letters from NW, he informed Tony Fung and suggested him to speak to Henry Cheng. As Tony Fung said he would take the matter up with Henry Cheng and had not asked him to respond, John Yip conveniently took no steps to respond. On the other hand, according to Tony Fung, he did not ask John Yip about the amount demanded, he just told Henry Cheng on one casual occasion to "get (NW's) people off my people's back." He said he was not surprised that more demand letters would follow but did not revert to Henry Cheng. Despite NW's demand had been brought up in SHKS's Exco, he did not enquire about the amount demanded, did not do anything about it and did not instruct John Yip to respond on the basis of the "dai chong" understanding. He just left it to John Yip to do whatever he wished or not to do anything at all. And John Yip found it convenient not to do anything as he had not been instructed. Tony Fung and John Yip were respectively, the chairman and chief operations officer of SHKS and formed part of the top management of SHK Group. The very casual way they conducted the affairs in the face of persistently repeated and ever escalating claim of that magnitude from NW is wholly inconsistent with top executives of their achievement and is utterly incredible.

62. Mr Strachan, QC, attempted to salvage John Yip's credibility by arguing that he was a nervous but credible witness. With respect, I do not agree. What John Yip did was inconsistent with there being such a "dai chong" understanding. For example, he instructed SHKS's accountant to check the accuracy of NW's demand for reimbursement of the shareholders loans and his conversation with Carson Wai as recorded in his own notes that the principle all along was that NW would provide the necessary funding for SHK in excess of the project loan at a rate of interest to be agreed. He was not nervous. His demeanour in the witness box accurately reflected that he had difficulties in explaining what he did and wrote which were inconsistent with the "dai chong" understanding.

63. Tony Fung discredited himself when he reiterated in his evidence that SHKS and SHK Group had entered into a number of transactions on the "dai chong" basis. Despite he had been given time to obtain particulars of those transactions, in the end he admitted he was unable to come up with any. He was exaggerating. He was not even sure of the extent of the alleged "dai chong" arrangement. Initially, Tony Fung claimed that "dai chong" was limited to land cost and did not even include expenses incurred in acquiring the land. But afterwards, he accepted that SHKS would have to pay stamp duty. He could not explain why despite the increase of issued share capital of GUP, "dai chong" meant that SHKS could still maintain 12.5% interest in GUP without having to pay for the rights issue. The inference is that his "dai chong" understanding is just a concocted defence far away from reality and that for some reason, SHKS decided not to put in funds beyond 12.5% of the cost of land.

64. In my view, Tony Fung and John Yip were acting in concert to concoct an explanation for SHKS's lack of response to NW's demand. They were evasive and hiding the truth from the Court. I reject their explanation for SHKS's lack of response to NW's various demands.

No "dai chong" understanding within SHKS under the Fung's regime

65. Within SHKS itself, it appeared that there never was any "dai chong" understanding. GUP sought financing from various banks in Malaysia pursuant to Clause 16 of the NW/IGB Shareholders Agreement and obtained offers. These offers were copied to SHKS. In response to the bank's requirement for individual shareholders' corporate guarantee, John Yip remarked that there was no need to have such a guarantee. If indeed there was a "dai chong" understanding between NW and SHKS, SHKS would not at all be concerned with such a corporate guarantee and John Yip's remarks were unnecessary. Even John Yip himself admitted that to be the case under cross-examination. John Yip's own contemporaneous remark is inconsistent with there being such an understanding. It is implicit in his remarks that SHKS recognised that as between SHKS and NW it was under a similar obligation to contribute 25% of whatever amount NW was obliged to advance to GUP by way of shareholders loan.

66. On 26 June 1992, when John Yip gave instruction to SHKS's accountant to prepare a cheque in payment of the balance of SHKS's acquisition of 12.5% of GUP shares, he wrote that he would deal with NW's demand for reimbursement of expenses separately. He never did and the "dai chong" understanding was not mentioned in any form within SHKS.

67. Upon receiving NW's demand on 11 January 1994, John Yip instructed its accountant, CC Kwok, to "check the figures". Kwok reported that NW had overcharged SHKS by HK$19,271.91. This is clear evidence that within SHKS itself, SHKS acknowledged its liability to the contributions, except for a small discrepancy in the amount of interest charged. If there was the "dai chong" understanding, there was no need to check the figures. The instruction to CC Kwok reflects that all along, SHKS considered itself liable to contribute to the shareholders loans and the "dai chong" understanding never formed part of the Oral Agreement. John Yip could not explain why he gave that instruction to CC Kwok. This casts further and serious doubts on John Yip's evidence that he had been informed by Tony Fung of the "dai chong" understanding.

68. In 1995, SHKS seemed to adopt a slightly different position in respect of the shareholders loans by saying that NW would provide the necessary funding for the Project for SHKS at a rate of interest to be agreed. This is reflected in John Yip's notes of his lunch meeting with Carson Wai on 9 March 1995. John Yip wrote:

"Have lunch with Carson Wai of New World.

Told him that SHK intended to act as a broker but ended up holding the interest as there was insufficient information to draw up a project proposal.

I told him that the principle all along was that (1) SHKS will take 12.5% of the investment project and its risk and (2) NW would provide the necessary funding for SHK in excess of the project loan at the rate of interest to be agreed.

Spoken to Chairman and told him when talking to Henry Cheng on the project that interest to be charged by New World should be at their cost of fund plus a small margin." (my emphasis)

69. The interpretation John Yip put to the third paragraph of his note is that NW would provide funding in respect of SHKS's contribution to the shareholders loan at a rate of interest to be agreed and to be paid by Stapleton or GUP to NW. That interpretation is in my view nonsensical. Stapleton was the investment vehicle of NW and SHKS. John Yip's interpretation would produce the nonsensical result of NW having to provide SHKS's share of the loans for Stapleton at NW's risk and costs but only to be paid interest out of their joint profit from Stapleton. It would have been fairer if NW were to provide all the funding, i.e. NW's as well as SHKS's share with interest to be paid by Stapleton. Even then, there was no reason why NW should bear SHKS's risk in respect of SHKS's share of the loan. If that was the case, the words "for SHK" were superfluous and meaningless, while the words "and to be paid by Stapleton" were missing. If the interest was to be paid by GUP, then the interest of IGB would be adversely affected and the preference share arrangement would have to be re-negotiated. John Yip's interpretation, with respect, only adds dishonesty to incredibility. In my view, the plain meaning conveyed by these words was simply that NW would provide funds for SHKS in respect of SHKS's share of the loan at a rate of interest to be agreed between SHKS and NW and to be paid by SHKS. There is also no dispute that John Yip did not raise the "dai chong" understanding with Carson Wai during this meeting. The inference that could be drawn from this meeting and from John Yip's note is that there was no such "dai chong" understanding. If there was, John Yip would have raised it rather than to say SHKS would take 12.5% of the investment project and its risks and would not have admitted its liability for interest in respect of its share of the loans which NW advanced on its behalf.

70. As for the last paragraph of John Yip's file note, Henry Cheng's evidence was that he did remind Tony Fung of SHKS's outstanding contributions but could not recall Tony Fung had ever talked to him about interest to be charged for funding SHKS's share of the loans. In the meantime, NW continued to make shareholders loan on its own behalf and on behalf of SHKS. Of course, it had to as it was obliged to under the terms of the NW/IGB Shareholders Agreement.

No "dai chong" understanding within SHKS under its new management

71. SHKS's liability is also recognised by its new management. Firstly, Arthur Dew, the chairman of SHKS under its new management, wrote to NW on 18 December 1997 as follows:

"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." (My emphasis)

This originated from John Yip's note of his lunch meeting with Carson Wai on 9 March 1995 referred to above. In his evidence, Arthur Dew gave to those words the same interpretation as John Yip's. However, that evidence is contradicted by his own instruction to TH Chung via his memo dated 18 December 1997 to add an amount for simple interest on the outstanding loans calculated at the Malaysian Bank overdraft rates on the Malaysian Ringgit. If the interest was to be paid by GUP, there was no reason why he should ask TH Chung to add an amount of interest on the loan. He, too, was not speaking what those words genuinely appeared to his mind. This is evidence that within SHKS under its new management it accepted liability to contribute to the shareholders loans and to pay NW interest for having made the loans on its behalf and that there was no "dai chong" understanding.

72. Secondly, at SHKS's Exco meeting on 3 March 1998, SHKS's Exco recited the following preamble and passed the following resolution:

"Stapleton has advanced the Project's financing from 1990, which has been treated as a loan to the Company. There were discussions to cap the Company's investment to HK$35,319,200, thereby diluting the Company's equity in GUP. No agreement however has been reached on this aspect of the matter. It is deemed prudent to provide for the Company's estimated share of the Project financing.

It was hereby resolved that the Company's shares in the Project shareholders' financing amounting to HK$70,613,976.47 ... be taken up as additional investment for the year ended 31 December 1997 ... and to finalise the arrangements for and the exact amount of the final contribution by the Company." (My emphasis)

This preamble clearly recognised the shareholders loans made by NW on behalf of SHKS were loans to "the Company", i.e. SHKS. The resolution also clearly points to the acceptance by SHKS of its liability to contribute to the shareholders loans and to make financial provision for the same and that there was no "dai chong" understanding.

Conclusion on the "dai chong" understanding

73. Mr Strachan, QC, submitted that it is inherently unlikely that SHKS would have accepted an open-ended/blank cheque liability to pay 25% of whatever expenses which would arise as a result of the Joint Venture when SHKS had no participation in critical events such as the negotiation of the Memorandum, the NW/IGB Shareholders Agreement including the important Clause 16, the rights issue and GUP's issue of preference shares in 1992. Mr Strachan, QC, further submitted that on the contrary, it is not inherently unlikely for NW to have agreed to the "dai chong" understanding because NW had other benefits to gain under the various collateral agreements such as hotel management agreements. Such argument is not supported by Tony Fung's evidence as he agreed that he was aware of the extent of SHKS's potential exposure during the Exco meeting in April 1990 when the matter was discussed.

74. Back in 1990 when the negotiation took place, the hotel business and its prospects were good. It was believed that there was a shortage of hotel accommodation in Kuala Lumpur. SHK's Exco thought the Joint Venture presented a good investment opportunity and was confident that it was a sound investment. KB Fung informed Exco that he had potential buyers lined up. The feeling within SHK Group was very positive. Tony Fung was so positive that he initially bargained for 50% of NW's interest in the Joint Venture. SHKS was not anticipating any problem with placing the GUP shares to potential investors. It was expecting quick profit. That was the very optimistic atmosphere when the negotiation took place in 1990. This "dai chong" understanding never appeared in any of SHKS's contemporaneous documents. In my view, SHKS was so optimistic in 1990 that it was not really worried about having to hold the 25% interest in the Joint Venture on any long term basis as KB Fung had investors lined up. The possibility of thus exposing itself to future obligation to see the Project through was one which never occurred to SHKS or would have been readily discounted in its mind.

75. On the other hand, NW must have been equally, if not more optimistic. It started the Joint Venture. It was never eager to sell the investment. Henry Cheng knew well that the parties to the Joint Venture had to contribute to the construction costs etc to see the Project through to completion. He had other offers for participation. NW was not making any profit in disposing of 25% of the investment to SHKS. Under the very optimistic atmosphere prevailing at the time, it made no business sense that NW should reduce its interest in this very promising Joint Venture not only without making any profit but still remaining fully committed in terms of liability for financing the Project because of this "dai chong" understanding. When Tony Fung requested in 1992 to scale down SHKS's participation in the Joint Venture to 12.5%, he was asking for a further concession from NW. In the circumstances, it was all the more improbable that Henry Cheng would have agreed to subject the Oral Agreement to the "dai chong" understanding, especially the business prospect at that time was not as optimistic as it was in 1990.

76. SHKS's case that it was to invest in 12.5% of the land cost but did not have to contribute to the construction and operational costs of the hotels and yet maintained a 12.5% interest in the Joint Venture is devoid of business sense. If it were true, by paying $35,319,200, SHKS would be participating as a 12.5% owner of two hotels, worth $211,687,500 (i.e. $3 x 564,500,000 x 12.5%, at $3 per MYR), though with about $80 million debt owing to NW for having financed the construction costs. SHKS would have the benefit of a limit to its liability, but without a corresponding limit to its potential gain, while its business risk beyond "dai chong" would be borne by NW. That is too good a purchase for SHKS and too stupid a sale for NW. In my view, even if Tony Fung had raised this question of "dai chong", Henry Cheng would not have agreed to the proposal.

77. In conclusion, Henry Cheng impressed me as a responsible witness. He gave evidence in a straight forward and convincing manner. His account is inherently credible and is consistent with the conduct of the parties, incontrovertible documentary evidence and the handwritten notes discovered from within SHKS itself. On the contrary, Tony Fung's and John Yip's evidence is hopelessly incredible when tested against the documentary evidence and SHKS's conduct. The irresistible inference that could be drawn from SHKS's lack of response to NW's various demands made during the years is that SHKS accepted its liability to pay the expenses, subscriptions to the rights issue and contributions to the shareholders loans and that the "dai chong" understanding never formed part of the negotiation between Henry Cheng and Tony Fung. The failure of SHKS to raise the "dai chong" understanding in any of its correspondence or dealings with NW and the lack of reference to this understanding within SHKS itself suggest that this "dai chong" understanding is nothing but a recent concoction. These irresistible inferences fortify Henry Cheng's evidence. I therefore accept Henry Cheng's evidence and reject Tony Fung's and John Yip's evidence. For these reasons, I reject SHKS's defence of "dai chong" understanding.

78. With the above finding of facts, I now turn to the Plaintiffs' three routes of claim.

THE ORAL AGREEMENT ROUTE

79. Having found the primary facts as set out in paragraphs 4 to 48, I make the following specific finding of fact. In April 1990, through the verbal exchanges between Henry Cheng and Tony Fung, NW entered into the Oral Agreement with SHKS for SHKS to participate in the intended joint venture between NW and IGB which was then under negotiation between NW and IGB. SHKS was to take up 50% of the interest which NW was to acquire in the Joint Venture, i.e. 25% of the entire Joint Venture. Under the terms of that Oral Agreement, SHKS was to contribute to 25% of the cost of land for the Project and was to acquire 25% of the issued shares of GUP. The terms of the Oral Agreement then underwent two changes. In May 1991, it was decided that instead of SHKS holding a direct interest in 25% of the shares of GUP, those shares would be held by Stapleton on trust for SHKS. In June 1992, SHKS's participation in the Joint Venture was reduced to 25% of NW's interest in the Project, i.e. 12.5% of the entire interest in the Joint Venture. Two major issues that required to be resolved are, firstly, what was SHKS's obligation under the terms of the Oral Agreement as regards financing of the Project; and secondly, whether NW was in breach of the Oral Agreement (or the June agreement as pleaded by SHKS in its counterclaim) for failing to obtain FIC approval for transfer of the GUP shares to SHKS.

SHKS's obligation to finance the Project: Certainty of the term

80. To ascertain the terms of their agreement, it is necessary to have regard to the entire factual matrix, including the conduct of the parties in their entirety, starting from their discussion in April 1990 to June 1992, including in particular SHKS's payments of deposit upon receipt of a copy of the Memorandum and the NW/IGB Shareholders Agreement. From his negotiation with Henry Cheng, Tony Fung knew briefly about the Joint Venture. He must be aware of the nature and magnitude of the Joint Venture before an agreement was reached for SHKS's participation in the Joint Venture. So far as the verbal exchanges are concerned, Henry Cheng told Tony Fung the following:

"I told him that we have to pay money - we have to pay the costs accordingly to the proportion. That means whatever it needs to develop the project, we would share in the ratio as mentioned. We would share the same risk, according to that ratio.

It was not discussed ... how much is equity fund, how much is shareholders loan. This is just a technical problem. This is just to deal with the tax problem or to meet the local requirements.

At the time when the agreement was reached, I said very clearly that, apart from the third party financing, the rest would be equity and shareholders loans, and we would pay according to the ratio. ... we have to share the money needed for the development and the risk. ..."

The essence conveyed by this conversation is that in addition to contributing to 25% of the land cost, SHKS had to contribute to the development costs required over and above that would be available by bank financing, i.e. third party financing, either by way of equity funding, i.e. funding by way of share capital, or by way of shareholders loans.

81. The main purpose or the subject matter of the Joint Venture between NW and IGB was the construction of the two hotels and apartment project. GUP was the corporate vehicle used for carrying out the purpose of the Joint Venture. Thus, acquisition of the shares in GUP was just an ancillary objective. Shareholding in GUP only defines the extent of the party's interest in the Joint Venture. NW and IGB had a whole string of rights and obligations under the NW/IGB Shareholders Agreement apart from whatever shareholders' rights and obligations which may have been stipulated in the memorandum and articles of association of GUP. One of these obligations was to finance the Project if bank financing was not available. On an objective view, the subject matter of the Oral Agreement was for SHKS to participate in the Joint Venture along with NW through the corporate vehicle of GUP and not just acquisition of shares in GUP. I have no difficulties in accepting Henry Cheng's evidence about what he told Tony Fung. I find that it was an express term of the Oral Agreement that SHKS shall contribute to financing the Project proportionate to its interest in the Joint Venture if third party financing was not available.

82. Mr Strachan, QC, submitted that the Oral Agreement was void for uncertainty of terms as there was no discussion during the April 1990 conversation about the way in which the Project was to be financed and that at the time it was in the contemplation of the parties that the Project would be financed by third party financing. He referred to the draft shareholders agreement between NW and IGB dated 30 April 1990, two or three weeks after the conversation, which indicated that the manner in which the Project was to be financed was yet to be decided. Clause 14 of the next draft dated 15 May 1990 showed that "the parties will use their best endeavours to arrange for project financing". Hence, Mr Strachan, QC, submitted that it is fanciful to suggest that Tony Fung would have made a binding agreement on behalf of SHKS involving a commitment to pay substantial, unquantified, unquantifiable and unlimited sums towards such shareholders loans which would in due course be required for the Project, when there was no expectation at that time that the Project would need to be funded by the parties.

83. I do not see it that way. Henry Cheng and Tony Fung are top businessmen discussing a very substantial business venture to the tune of MYR586.71 million. They were not negotiating the purchase of fully paid shares in the stock market, but negotiating a joint venture, which in essence was a business partnership in which the partners commit themselves to finance the Project through to completion. They had a fair idea of the size of the capital investment, i.e. the cost of land for the Project and financing required if third party financing was not available. Thus the commitment they had in mind was not an unquantified or unquantifiable or unlimited one, though it was substantial and contingent on bank financing not being available. The successive draft shareholders agreements since then and until 6 July 1990 showed the progress of crystallisation of the financing provision in the form of Clause 16 of the NW/IGB Shareholders Agreement as executed.

84. Upon signing the Memorandum with IGB on 11 April 1990, a copy was sent to SHKS. In his internal memo to SHKS's chief accountant, John Yip wrote as follows:

"Please issue a cheque today for HK$6,075,587.50, payable to New World Development Co Ltd being advance payment for a hotel project in Kual Lumpur.

According to the Memorandum of Agreement between New World Development Co. Ltd. and IGB Corporation Berhad, a 10% deposit of MYR4,250,000 shall be paid on the date of the execution of this Memorandum. The Memorandum was executed this morning. It was agreed between New World and Sun Hung Kai that Sun Hung Kai will procure investors for 50% of the interest and the remaining 50% retained by New World. Accordingly, Sun Hung Kai has to advance HK$6,075,587.50 (i.e. 1/2 of MYR4,250,000 @ 2.8591) ...

c.c. Mr CC Kwok (with copies of agreements and book as advance payment in Sun Hung Kai Securities Limited.)"

From this internal memo, it is obvious that SHKS had been kept very up to date as to the progress between NW and IGB in this Joint Venture. It was informed of the execution of the Memorandum on the very morning it was executed and it had a copy of that Memorandum. Clause 2(d) and 7(d) of that Memorandum read:

"2(d)	The parties agree to ... ensuring that Newco has sufficient funds to meet its commitments in a timely and appropriate fashion.
7(d)	The total acquisition and construction costs of and relating to the Hotels will be borne by both parties equally either by equity funding or bank borrowing."

"Newco" stands for the joint venture vehicle to be formed.

85. Thus, with knowledge of these provisions in the Memorandum, SHKS must have known that the agreement as between NW and IGB was that NW shall contribute both to the land cost and development costs of the hotels and apartment block either by bank borrowing or equity funding. "Equity funding" in this context may mean capital funding or shareholders loan. But, whatever that term means, funds shall be provided by NW on the one part and IGB on the other. If that was the basis how NW was to participate in the Joint Venture, that must also be the basis how SHKS was to participate either directly with NW and IGB or indirectly under NW's umbrella. This inference is consistent with Henry Cheng's evidence of what he told Tony Fung. So, when SHKS made payment representing 50% of the deposit NW was obliged to pay under the Memorandum, it was by conduct confirming its earlier acceptance of the terms as spelt out by Henry Cheng during earlier the oral negotiations with Tony Fung. Hence, the essence of the 1990 Oral Agreement was that SHKS shall participate with NW on a 50-50 basis in the Joint Venture, shall take 25% interest in the Joint Venture and its risk, shall pay 25% of the land cost and shall finance to the extent of 25% of such of the cost of the Project as would not be covered by bank financing, either by way of share capital or shareholders loan.

86. When the NW/IGB Shareholders Agreement was signed on 20 July 1990, Henry Cheng faxed a copy to Peter Fung on 23 July 1990. Clause 16.2 of the agreement provides as follows:

"In the event of a shortfall on financing or in the event financing ... is not available then IGB and NW shall contribute to the financing by way of shareholders loans pro rata to the ratios their combined respective shareholdings in GUP ..."

Upon receipt of the agreement, SHKS paid its second instalment of the deposit for the land cost which NW was obliged to pay under the terms of the Memorandum. This clause is consistent with Clause 2(d) and 7(d) of the Memorandum. As with the payment of the initial deposit, when SHKS paid the second deposit with knowledge of these clauses under the Memorandum and the NW/IGB Shareholders Agreement, it must do so on the basis that it was to participate in the Joint Venture on the same basis as NW, i.e. SHKS had to contribute to financing the Project if bank financing would not be available. This clause is wholly consistent with what Henry Cheng told Tony Fung. NW's rights and obligations under that Joint Venture were exhaustively defined in the NW/IGB Shareholders Agreement, which SHKS had a copy. To give business efficacy to the Oral Agreement between NW and SHKS, the terms in the NW/IGB Shareholders Agreement to the extent they were applicable and subject to such modification as were necessary must by implication have been incorporated or implied into the Oral Agreement between NW and SHKS. Thus SHKS was under a legal obligation to contribute 25% of the shareholders loans which NW was obliged to provide under Clause 16.2 of the NW/IGB Shareholders Agreement. I am unable to agree with Mr Strachan, QC, that the Oral Agreement is void for uncertainty.

87. This is the typical case in which the dictum of Bingham LJ in F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Report 53 at 57 is applicable:

"In a commercial agreement the further the parties have gone on with their contract, the more ready are the Courts to imply any reasonable term so as to give effect to their intentions. When much has been done, the Courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties. In this case there is less difficulty than in others because there is an arbitration clause which, liberally construed, is sufficient to resolve any uncertainties which the parties have left."

88. The parties have proceeded with their contract. Pursuant to the Oral Agreement, SHKS paid its contribution to 12.5% of the land cost, though it failed to pay its contribution to the expenses, the rights issue and shareholders loans. NW advanced shareholders loans on its own behalf and on behalf of SHKS to GUP to finance the Project. Except for SHKS's failure to pay, the Oral Agreement was performed on both sides. All further liaisons between NW and SHKS since April 1992 were about payment by SHKS of the above outstanding amounts and its contribution to the shareholders loans and signing of a formal shareholders agreement. These negotiations were related to the performance of the Oral Agreement and not about the terms of the agreement. There was no uncertainty about the terms of the agreement or its performance. In my view, the parties have gone so far into performing their part of the agreement that it defies common sense to say that the agreement was void for uncertainty.

FIC approval for SHKS's participation

89. FIC approval is required in respect of any transfer of GUP shares to a foreign interest. The NW/IGB Shareholders Agreement was conditional on such approval being granted. Thus it would not be difficult to imply into the Oral Agreement a term making the Oral Agreement conditional upon FIC approval being obtained. That was how NW progressed (see paragraphs 11 to 14 ante). In August 1990 NW proposed that for tax purposes the parties would hold the GUP shares via a BVI company. In November 1990 Stapleton was identified as the BVI company for that purpose. After FIC approved the transfer of 50% of the GUP shares to NW on 7 March 1991, Mitsui was instructed to seek the views of FIC officials regarding the transfer of NW's GUP shares to SHKS on 25 March 1991. The FIC officials advised that approval was required only as a matter of formality and procedure as those shares were already in the hands of a foreign party.

90. It was NW's intention to process FIC approval for SHKS. On 17 April 1991, RW invited SHKS to provide its corporate and financial information for processing FIC approval. Then John Yip, Alex Chow and Paul Tong reached an agreement that it was not appropriate to apply for FIC approval for SHKS's participation at that stage, that NW would hold the GUP shares on trust for SHKS and that FIC approval would be sought when SHKS had found committed investors. Mr Strachan, QC, submitted that it is not the case that further FIC application did not proceed because of SHKS's failure to provide documentation but because NW and SHKS agreed that it was not appropriate for the application to be made at that point. Hence, he submitted that the condition precedent to which the Oral Agreement was subject had never been met.

91. With respect, that is not a balanced view of the evidence. NW was actively pursuing FIC approval for SHKS. Given the very favourable reply from FIC officials, such approval would be forthcoming. On the other hand, it was all along SHKS's intention to download the investment to its investors for profit but it was unable to find any committed investor. Since every transfer of GUP shares would require FIC approval, it made business sense for SHKS not to have the GUP shares transferred to itself at that stage but to have them held on trust by NW until an investor was found and then to have the shares transferred direct from NW to the ultimate investor without going through SHKS and without involving unnecessary FIC approval. It could not have been the parties' intention under the above arrangement to defer FIC application until such time as SHKS was able to find a committed investor and then to process FIC approval for SHKS only for SHKS to immediately seek FIC approval for its subsequent disposal to the ultimate investor. The intention of the parties must have been simply to dispense with the condition precedent under this more efficacious arrangement with NW holding the GUP shares on trust for SHKS.

92. Thus, on the fact, the parties have by mutual consent changed the Oral Agreement from one in which SHKS was to acquire a direct interest in the GUP shares and which was conditional upon FIC approval to one in which SHKS was to acquire an equitable interest in the GUP shares and not conditional upon FIC approval. Of course, a term must be implied into the Oral Agreement as a matter of business efficacy that NW will exercise all diligence and care to secure FIC approval for the transfer of the 12.5% of GUP shares to SHKS or its nominees and to so transfer the shares at SHKS's direction. Thus, while FIC approval for NW's participation in the Joint Venture was a condition precedent under the NW/IGB Shareholders Agreement and in that connection must also be a condition precedent under the Oral Agreement between NW and SHKS, for without which there would not be any subject matter under the Oral Agreement, FIC's approval of SHKS's acquisition of the GUP shares was not a condition precedent under the Oral Agreement between NW and SHKS as a result of the mutual agreement in May 1991. A year later, SHKS paid the balance of the purchase price for 12.5% of the GUP shares just as NW paid the balance for its 37.5% of the GUP shares in accordance with the NW/IGB Shareholders Agreement. By that conduct, the parties must have agreed and affirmed the above change in the Oral Agreement. In making the above finding, I also reject SHKS's case about the June agreement (see paragraphs 150-151, post).

Uncertainty of term: indirect holding of GUP shares through Stapleton

93. Mr Strachan, QC, submitted that an unresolved and critical aspect of the arrangement between NW and SHKS was whether SHKS should hold a direct interest in GUP or an indirect interest via a shareholding in Stapleton. He referred to the evidence of Arthur Dew, SHKS's managing director under the Lees' management, that for SHKS to have a 25% interest in Stapleton would be a worthless investment and a minority interest with no control in the BVI company, while a 25% direct interest in GUP would give SHKS a say at operating company level. Arthur Dew is entirely correct as to the practical effect of the arrangement.

94. I have set out above how Stapleton came to hold the 12.5% shares of GUP on trust for SHKS (see paragraphs 11 to 14, ante). The arrangement was a conscious decision of SHKS. SHKS asked to have the shares held on trust for itself and they were so held by Stapleton. It never was SHKS's intention to actively participate in the Joint Venture at operating company level such that a direct interest in GUP would mean anything to SHKS. I do not think the arrangement reflected any unresolved critical differences between the parties at the time. Arthur Dew's opinion is just a convenient afterthought under the new management, which has no bearing to the reality at the time.

Uncertainty of terms: Intended written agreement not executed

95. In parallel with his argument about uncertainty of contractual terms, Mr Strachan, QC, submitted that the Oral Agreement is void or not binding as the parties contemplated that the essential rights and duties of NW and SHKS towards each other would be established and regulated by a written agreement and such a written agreement has not been executed. In my view, that does not turn the Oral Agreement into an agreement to enter into a written agreement. If the Oral Agreement can stand on its own, it does not cease to be a valid and binding agreement by reason only that the written agreement contemplated has not been entered into. It can be enforceable like a provisional sale and purchase agreement of real property where the formal agreement contemplated by the parties have not been entered into for one reason or another. Any inadequacies in contractual terms can be cured by terms implied under the Moorcock principle.

96. Mr Strachan, QC, referred to the absence of any provision obliging SHKS to contribute to shareholders loans in the first draft NW/SHKS shareholders agreement prepared by Osborne and submitted that this reflected NW's instructions to RW and its solicitor's understanding of what Henry Cheng and Tony Fung had not yet agreed. He made the further point that the broad range of proposed legal relationships as reflected by the various draft NW/SHKS shareholders agreements show that there was no agreement between the parties even as to the most fundamental basis of their relationship. Three draft NW/SHKS shareholders agreements and three draft NW/SHKS/Stapleton placement agreements prepared by Osborne were discovered. Only the draft agreement dated 8 October 1990 and the one dated 7 April 1992 had been sent to SHKS.

97. I do not think it necessary to go into any depth analysing these drafts. Mr Strachan, QC's argument must be considered in the light of the fact that these drafts were prepared before June 1992. The first two draft shareholders agreement were prepared at the same time as the NW/IGB Shareholders Agreement was being negotiated and drafted. The 3 May 1990 draft contemplated a simple transfer by NW to SHKS of the shares NW was to acquire in Newco, the intended joint venture vehicle under the Joint Venture. The 8 October 1990 draft was a different agreement altogether whereby NW and SHKS would cause a new BVI company to be incorporated to acquire the shares in GUP to be transferred to NW under the NW/IGB Shareholders Agreement. Of course these drafts reflected a change in the proposed legal relationship between NW and SHKS while the nature of relationship between NW and IGB was taking shape in the course of the negotiation between NW and IGB. At the highest, they reflect what NW's solicitors proposed as the means to give effect to that Oral Agreement while the nature of the relationship between NW and IGB under the Joint Venture was taking shape. The changes did not affect the obligation between NW and SHKS under their Oral Agreement. Once the NW/IGB Shareholders Agreement was crystallised and when SHKS made its second payment with full knowledge of that agreement, it must have accepted that the relationship between NW and SHKS would be along similar lines as that between NW and IGB wherever applicable. For example, Clause 6.2.2 of the 8 October 1990 draft of the NW/SHKS shareholders agreement provided for proportionate contribution to the financing of the Project which NW was obliged to provide pursuant to the NW/IGB Shareholders Agreement. Even though the draft agreement was never signed by the parties, this term may be readily implied into the Oral Agreement under the circumstances.

98. The drafts also show that no agreement had been reached as to the type of investment vehicle to be used for the purpose of carrying out the Oral Agreement. However, SHKS was a passive investor. Its purpose was to acquire the investment for downloading it to its clients at a profit. The type of investment vehicle was of no importance to SHKS as reflected by SHKS requesting NW to hold the shares of GUP on trust for SHKS. The type of investment vehicle is a matter of detail which could be left to be agreed at a later stage. The three draft placement agreements were odd. They must have been prepared for SHKS's purpose of placing the GUP shares on its own clients and could not be taken as evidence that there was no concluded agreement between NW and SHKS.

99. Whatever might have been the purpose for which these draft placement agreements and shareholders agreement were prepared, they fell into insignificance when SHKS paid the balance of the purchase price for the 12.5% of the GUP shares with full knowledge of the terms of the NW/IGB Shareholders Agreement. This is because the inference could readily be drawn that SHKS accepted that the terms of the NW/IGB Shareholders Agreement to the extent they were applicable to the relationship between NW and SHKS were implied to the Oral Agreement.

Uncertainty as perceived from within NW

100. Mr Strachan, QC, referred me to various correspondences from Osborne and Paul Tong which, he submitted, pointed against the existence of a concluded agreement between NW and SHKS. By way of examples, on 28 March 1991 Osborne made a file note that he was not sure if NW had in mind disposing of its GUP shares to other parties. In a letter dated 12 April 1991 jointly signed by NW's and IGB's solicitors it was recorded that NW may or intended to dispose up to 60% of its interest to SHKS or such other parties. In another letter, Osborne expressed concern that the placement agreements as drafted may be unenforceable for uncertainty. In Paul Tong's memorandum dated 7 May 1992, Paul Tong recommended NW to obtain more details as to SHKS's intention regarding its participation. Mr Strachan, QC, urged me to draw the inference from NW's failure to call Osborne and Paul Tong that these witnesses would have given evidence unfavourable to the Plaintiffs as regards the existence of a binding agreement between NW and SHKS.

101. I do not think it necessary to analyse these documents here. Suffice it to say, I have read them and considered them in the circumstances and time they were written. I do not think these documents support the inference which Mr Strachan, QC, urged me to draw. Most of these correspondences were written before June 1992 when SHKS paid the balance of the price for the 12.5% of the GUP shares. Osborne was seeking clarification and instructions in some of those letters to Paul Tong and could not be taken as stating a firm view on the validity of the Oral Agreement. As for Paul Tong's letter dated 7 May 1992, Paul Tong was obviously addressing SHKS's problem in identifying an ultimate investor to whom to download the investment. There was no lack of an agreement for SHKS to participate in the joint venture with NW. What was left to be decided was to whom the shares in GUP held by NW on trust for SHKS were to be transferred as that would dictate the steps to be taken in seeking FIC approval. That was the intention which Paul Tong wished to seek from SHKS and not whether SHKS had intention in participating in the joint venture.

102. Osborne did entertain some doubts as to whether the Oral Agreement was binding. I do not consider I am bound by Osborne's opinion which was formed without the benefit of the totality of the evidence, in particular John Yip's handwritten notes on NW's fax dated 23 April 1991. In that note, John Yip recorded that he had agreed with Alex Chow and Paul Tong that NW would hold the GUP shares on trust for SHKS and application for FIC approval would be made when SHKS had found investors who had committed to the Project. Such conduct suggests that SHKS considered the agreement binding and it would be difficult to argue that the parties had no intention to enter into a binding contractual relationship. The placement agreement was never entered into and even if they were void for uncertainty of financial obligation as against the placees had they been executed, the position as between SHKS and NW as parties to the Oral Agreement is entirely different.

103. As for NW's failure to call Osborne and Paul Tong, Mr Chan, SC's reply is that it is not necessary. That is a matter for the Plaintiffs. On the facts, Osborne and Paul Tong were not parties to the negotiation of the Oral Agreement. The documents written by them were not in dispute. The adverse inference which Mr Strachan, QC, urged me to draw is a very weak one and is readily displaced by the written documents and handwritten notes of John Yip and the fact that the parties have acted on the basis of an existing agreement. I am satisfied that there was every intention in NW and SHKS to enter into the Oral Agreement and the parties have acted on the Oral Agreement on the basis it was binding.

Conclusion on the Oral Agreement Route

104. On the basis of the above finding, I am satisfied that NW and SHKS had entered into the Oral Agreement in April 1990 under which SHKS was to participate in the Joint Venture with SHKS holding a direct 25% interest in GUP. It was an implied term of the Oral Agreement that SHKS shall finance the Project by contributing to the expenses and shareholders loans proportionate to its interest in the Joint Venture. The Oral Agreement was conditional on FIC approval being obtained for the transfer of the GUP shares to SHKS. In May 1991, however, the parties by consent varied the Oral Agreement to the extent that SHKS was to participate in the Joint Venture under the umbrella of NW and with NW holding the GUP shares on trust for SHKS. The agreement was unconditional as FIC approval was not required. In June 1992, the Oral Agreement was further altered by consent with the result that SHKS's interest in the Joint Venture was reduced to 12.5%. The Oral Agreement was not subject to "dai chong" understanding. SHKS has no valid defence to the Plaintiffs' claim as there is no dispute that SHKS had not reimbursed the expenses, the subscription for the rights issue and had not contributed to the shareholders loans.

THE AGENCY ROUTE

105. NW's second ground of claim is based on an implied agency. NW's case is that as NW and SHKS had entered into the Oral Agreement, when Henry Cheng negotiated and signed the NW/IGB Shareholders Agreement, he was representing both NW and SHKS and SHKS had knowledge about that. Hence SHKS became a principal to the NW/IGB Shareholders Agreement and was bound to pay shareholders loans pursuant to Clause 16.2 of that agreement. When NW advanced the shareholders loans expressly on SHKS's behalf and with SHKS's knowledge and without SHKS never asking NW to stop doing so, an agency arose by operation of law.

106. There is no evidence that Tony Fung expressly or impliedly authorised NW to enter into the Memorandum and the NW/IGB Shareholders Agreement in part on SHKS's behalf. Henry Cheng also agreed that he never told Tony Fung or anyone from SHKS that he did so on behalf of SHKS. SHKS never contributed to the contents of the NW/IGB Shareholders Agreement and did not participate in its drafting process. No application had been made to the FIC for SHKS's participation in the Joint Venture, let alone been approved by the FIC. The Oral Agreement was only a joint venture between NW and SHKS within the NW/IGB Joint Venture in which SHKS participated under NW's umbrella. All the evidence points to NW entering into the NW/IGB Shareholders Agreement solely on its own behalf though with the intention that 50% of the GUP shares to be acquired would be transferred to SHKS at a later stage subject to and with the benefit of the NW/IGB Shareholders Agreement. Though IGB knew of NW's intention to dispose of 25% of the GUP shares to be acquired to SHKS, at that stage SHKS was not a party to the NW/IGB Shareholders Agreement. Even if the management of IGB were desirous of entering into a contract with SHKS, without FIC approval it could not have so contracted with SHKS and it never had.

107. Mr Chan, SC, relied on NW's letter dated 10 May 1993 to SHKS and its silence as ratification of the agency. In that letter, NW wrote:

"As we have previously discussed, the original Shareholders agreement in GUP has requested both IGB and [NW] (also representing [SHKS]) to advance shareholders' loans in order to finance the property development. However the Malaysian Companies Act prohibits IGB to advance loans to GUP. To overcome this IGB suggested to subscribe preference shares instead of making advancements, but the taking up of preference shares would not be advantageous to [NW] as well as [SHKS]. It has been finally resolved that [NW] (and [SHKS]) continues to advance shareholders' loans to reflect the same proceeds of preference shares taken up by IGB."

108. When a person does an act purportedly in the name of or on behalf of another person without his authority, the person in whose name or on whose behalf the act is done may ratify the act and make it as valid and effectual as if it had originally been done by his authority: see Bowstead on Agency, 17th Edition, paragraph 2-047. Ratification may be express or implied from words or conduct of the person in whose name or on whose behalf the act is done. Such words or conduct must be plain and unequivocal and could not be accounted for by other interpretation. There is no evidence of express ratification from SHKS. SHKS was not a party to the resolution that SHKS would continue to advance shareholders loans. Insofar as the letter of 10 May 1993 is concerned, it was not issued or written by SHKS.

109. NW is relying on SHKS's receipt of this letter and its inaction as implied ratification. If receipt is an act, it could only be a passive act, such as a letter being thrust into the hands of a passive recipient or into his mail box. I do not think SHKS's receipt of NW's letter could constitute an unequivocal acceptance of whatever NW sought to resolve by itself. Quite on the contrary, SHKS's consistent non payment is evidence of its non-acceptance of the resolution. As for SHKS's inaction, the real question is whether SHKS's silence or inaction in the circumstances amounted to ratification. Here, this question merges imperceptibly into estoppel and will be considered under NW's claim of estoppel by convention.

110. On the facts of this case, SHKS could not have been and was not a party to the NW/IGB Shareholders Agreement. It had no obligation to NW or IGB or GUP to advance shareholders loans under the NW/IGB Shareholders Agreement, though under the Oral Agreement SHKS had a contractual obligation to NW to contribute to the shareholders loans. The shareholders loans advanced by NW to GUP were loans advanced by NW pursuant to its obligation under the NW/IGB Shareholders Agreement. Though NW has a valid claim under the Oral Agreement for SHKS's contribution to the shareholders loans, NW was obliged to make the advances under the NW/IGB Shareholders Agreement, NW may not translate SHKS's indirect obligation to GUP to a direct one by arguing that when NW made the advance pursuant to its own obligation under the NW/IGB Shareholders Agreement it did so as agent of SHKS pursuant to an agreement in which SHKS never was a principal. NW's claim under the Agency Route must fail.

ESTOPPEL BY CONVENTION ROUTE

111. NW's third route of claim is estoppel by convention. In view of my finding in favour of NW under the Oral Agreement Route, I do not have to consider NW's claim of estoppel by convention. I shall, nevertheless, deal with this route of claim, in case I am wrong in my finding on the Oral Agreement and its terms.

112. It is well settled law that estoppel by convention may arise where both parties to a transaction act on a common assumption of facts or law, the assumption being either shared by both or acquiesced in by the other. The parties are then precluded from denying the truth of that assumption if it would be unjust or unconscionable to allow them or one of them to go back on it. The leading authority on this proposition is the following dictum of Lord Denning MR in Amalgamated Investment & Property Co Ltd v. Texas Commerece International Bank Ltd [1982] 1 QB 84 at 122C-D, where he said:

"When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands."

113. The requirement that the mistaken assumption must be a common one means that the assumption must have been communicated between the relevant parties whether by word or by conduct: Schindler Lifts (Hong Kong) Limited v Ocean Joy Investments Limited [2003] HKC 438 at 445. Both parties must share the mistaken assumption and conduct their affairs on that basis. It is not enough for one party to act on a certain assumption while another party acts on a different assumption. Nor is it enough for the parties to have acted on the same assumption but independently of each other.

114. NW pleaded the entire course of events starting from April 1990 through to August 1996 as giving rise to the common assumption. The assumption relied on by NW is that the parties had entered into an agreement under which SHKS was obliged to contribute to the costs of construction of the hotels and apartment blocks proportionate to its interest in the Joint Venture. This is the conventional basis relied on by NW. NW's case is that it was upon this basis that NW incurred the expenses and advanced shareholders loans for and on behalf of SHKS and it would be unjust or unconscionable to allow SHKS to resile from that conventional basis. The thrust of NW's case is based on SHKS's silence to NW's repeated demands for payment.

115. SHKS's defence is that the Plaintiffs' claim of estoppel fails as a matter of law and as a matter of fact and that silence does not support an estoppel. I shall deal with these legal issues first before turning to the facts.

Whether NW may rely on estoppel as a cause of action

116. Mr Strachan, QC, submitted that as a matter of law estoppel by convention, like any form of estoppel other than proprietary estoppel, may only be used as a shield and not a sword so as to support a cause of action. He referred to Wilken and Villiers, The Law of Waiver, Variation and Estoppel, 2nd Edition, at paragraph 10.11 where it is stated that other than proprietary estoppel, estoppel is an evidential doctrine and does not create substantive rights or a cause of action. From the way Mr Chan, SC, opened the Plaintiffs' case, it is obvious that the Plaintiffs relied substantially on estoppel by convention as a cause of action and that it is only when that failed that the Plaintiffs would fall back on the Oral Agreement and Agency Routes. I think Mr Strachan, QC, is correct. In the more recent case of Baird Textiles Holdings Ltd and Marks & Spencer plc [2001] EWCA Civ 274, the English Court of Appeal affirmed that it is only proprietary estoppel that gives rise to a cause of action and neither common law estoppel nor an estoppel by convention can create a cause of action. I know of no decision in Hong Kong which suggests otherwise.

117. Though NW may not rely on estoppel by convention as a separate or independent cause of action, to the extent that NW is able to prove a valid oral contract between NW and SHKS, it may rely on the estoppel and prevent SHKS from resiling from the common assumption, i.e. the interpretation which the parties themselves put to the contract. Thus, even if on the true construction of the Oral Agreement, SHKS was not obliged to contribute to the other expenses, the subscription to the rights issue and the shareholders loans, NW may, as a result of being able to rely on estoppel by convention, prevent SHKS from resiling from the common assumption that it was obliged to contribute. In Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] 1 QB 84, Brandon LJ held at 131E - 132A:

"I turn to the second argument advanced on behalf of the plaintiffs, that the bank is here seeking to use estoppel as a sword rather than a shield, and that that is something which the law of estoppel does not permit. Another way in which the argument is put is that a party cannot found a cause of action on an estoppel.

In my view much of the language used in connection with these concepts is no more than a matter of semantics. Let me consider the present case and suppose that the bank had brought an action against the plaintiffs before they went into liquidation to recover moneys owed by A.N.P.P. to Portsoken. In the statement of claim in such an action the bank would have pleaded the contract of loan incorporating the guarantee, and averred that, on the true construction of the guarantee, the plaintiffs were bound to discharge the debt owed by A.N.P.P. to Portsoken. By their defence the plaintiffs would have pleaded that, on the true construction of the guarantee, the plaintiffs were only bound to discharge debts owed by A.N.P.P. to the bank, and not debts owed by A.N.P.P. to Portsoken. Then in their reply the bank would have pleaded that, by reason of an estoppel arising from the matters discussed above, the plaintiffs were precluded from questioning the interpretation of the guarantee which both parties had, for the purpose of the transactions between them, assumed to be true.

In this way the bank, while still in form using the estoppel as a shield, would in substance be founding a cause of action on it. This illustrates what I would regard as the true proposition of law, that, while a party cannot in terms found a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed. That, in my view, is, in substance, the situation of the bank in the present case.

118. This is precisely the very situation in which the Plaintiffs find themselves. The Plaintiffs have a cause of action in contract, which they succeeded in proving. SHKS is in effect saying that on a true construction of the Oral Agreement it is not obliged to contribute to the shareholders loans. The Plaintiffs may then rely on estoppel by convention to prevent SHKS from resiling from the common assumption that SHKS was obliged under the terms of the Oral Agreement to contribute proportionate to its interest in the Joint Venture, the expenses, subscription to the rights issue and the shareholders loans to GUP. Thus, NW may rely on estoppel to this limited extent. For the purpose of considering the estoppel claim, I shall adopt my finding of primary facts as set out in the earlier part of this judgment as regards existence of an oral contract between NW and SHKS. I shall ignore my interpretation of the terms of that the Oral Agreement and ascertain what was the common assumption between the parties and whether NW may validly raise the estoppel.

Silence and duty to undeceive

119. NW's case of estoppel is based primarily on SHKS's silence to NW's demands. The weight of authority is to the effect that silence alone is not enough to support an estoppel by convention. In Moorgate Mercantile Co Ltd and Twitchings [1977] AC 890 at 903A, Lord Wilberforce said:

"... inaction or silence, by contrast with positive conduct or statement, is colourless: it cannot influence a person to act to his detriment unless it acquires a positive content such that that person is entitled to rely on it. In order that silence or inaction may acquire a positive content it is usually said that there must be a duty to speak or to act in a particular way, owed to the person prejudiced. ..."

And in Superhulls Cover [1990] 2 Lloyds Law Report 431, Phillips J (as he then was) said at 452:

"... a party who has remained silent may be estopped from asserting that the facts are other than those which they were mistakenly assumed to be. But such an estoppel will only arise if the party estopped was under a legal duty to dispel the other party's misunderstanding."

Thus on these authorities, silence may be prayed in aid to support the existence of a shared common assumption only if the party who was silent had a legal duty to speak or to act in a particular way.

120. Mr Chan, SC, referred to Pacific South (Asia) Holdings Ltd and Million Unity International Ltd [1997] HKLRD 1238 and submitted that SHKS was under a duty to undeceive if it perceived that NW was labouring under a mistake as to some essential matter. Mr Strachan, QC, argued that such a duty would only be imposed on a person for having deluded another into believing a certain state of affairs. In Pacific South (Asia) Holdings Ltd and Million Unity International Ltd, the vendor's solicitors led the purchaser's solicitors into the belief that the vendor would accept payment of a deposit by the purchaser's personal cheque rather than cash as normally required. The vendor then rescinded the contract on the basis that the purchaser has failed to perform in accordance with the terms of the contract. Godfrey JA (as he then was) took a dim view of the conduct of the vendor's solicitors and found that they led the purchaser's solicitor into a trap. He said at 1244:

"The judge took a dim view of the vendor's solicitors' conduct. So do I. They led the purchaser's solicitors into a trap. Their failure to particularise any grounds for their objection to the tender led the purchaser's solicitors into thinking that the tender was objected to on the grounds of prematurity. The purchaser's solicitors so informed the vendor's solicitors. At this stage, when there was time for the vendor's solicitors to put the purchaser's solicitors right upon this point so as to enable the purchaser to make an acceptable tender, the vendor's solicitors made no attempt to do so. ... The purchaser's solicitors were entitled to expect that the vendor's solicitors would have corrected them if their belief as to the vendor's objection to the tender was mistaken.

Where one party to a transaction perceives that the other party is labouring under a mistake as to some essential matter, he comes under an obligation to undeceive the other party if his omission to do so will "foster and perpetuate the delusion" (as it is put in Spencer Bower and Turner, Estoppel by Representation, 3rd edn., (1977), at para. 59). In such a case silence is in effect a misrepresentation that the facts are indeed as the other party mistakenly believes them to be; and the first party is estopped from asserting otherwise."

It can be seen from the above dicta that the duty to undeceive does not arise merely when a party perceives that the other party is labouring under a mistake as to some essential matter. Whether the duty arises depends on all the circumstances of the case, the relation between the parties and their conduct. In Pacific South (Asia) Holdings Ltd and Million Unity International Ltd, the duty arose because of the misleading conduct of the vendor's solicitors in circumstances where it was reasonable to expect they would correct the other's mistake. It is impossible to lay down rules as to what would give rise to this duty. All depends on the circumstances of the individual case.

121. This duty may arise where the parties are in a contractual relationship as in Pacific South (Asia) Holdings Ltd and Million Unity International Ltd. The duty would most readily arise if the parties are parties to a fiduciary relationship, such as a partnership. Partners owe a fiduciary duty to one another. They have a common interest in the partnership. If one partner has come to the knowledge that the other partner is labouring under a mistake and the mistake is related to some essential matters concerning their partnership, that partner comes under a duty to correct the other partner's mistake. The other partner would also be entitled to expect him to do so.

122. In the present case, the parties assumed they had entered into a joint venture agreement within the framework of the Joint Venture and in terms similar to the NW/IGB Shareholders Agreement. It was not just an agreement to purchase shares in GUP. The Joint Venture orginally involved an initial investment of MYR85 million in acquiring the land and development costs of MYR501.71 million or MYR94.50 million and MYR469.10 million respectively adjusted in April 1992 according to the Progress Report. SHKS had 12.5% interest in the Joint Venture. SHKS had knowledge of the development costs which was about five to six times the initial investment which the parties had to pay by way of acquisition of shares in GUP. SHKS also knew through the oral negotiation in April 1990, the Memorandum and the NW/IGB Shareholders Agreement that NW and IGB had to contribute to the development costs of the Project if bank financing would not be available. SHKS was to participate in this Joint Venture, directly or indirectly under NW's umbrella. Under such setting, NW told SHKS through the two demand letters, paragraph 7 of the Progress Report and the two conversations between Carson Wai and John Yip that NW's understanding was that SHKS had to contribute to the expenses and shareholders loans. This understanding or misunderstanding on the part of NW related to an essential matter. It involved a very substantial sum of money even after allowing for proceeds from sales of the associated condominium units built together with the Project of MYR 12 million and MYR326 million of estimated available bank loan. According to the Progress Report, the shareholders loan required from SHKS was estimated to be $49.5 million ($3 x 132,000,000 x 12.5%, at $3 per MYR). On 3 October 1991, NW wrote to SHKS requesting SHKS to remit its contribution to the first shareholders loan of MYR160,000. Even assuming that SHKS honestly believed that it was under no obligation to contribute to the expenses and shareholders loans, it must realise that NW held a different assumption. SHKS must know that if NW was mistaken as to the assumption and if SHKS would not contribute to these shareholders loans, the Joint Venture would be adversely affected, in that 12.5% of the financing or $49.5 million which NW and IGB anticipated and relied on would not be available. At that stage, there was still time for NW to be corrected of its misunderstanding before committing itself further into this potential liability of $49.5 million. NW and SHKS were parties to a joint venture. Their relationship was akin to a partnership. They were under a duty of good faith to one another. If the Project was to collapse, the loss suffered by them would be tremendous. Not only would NW be affected, IGB and GUP would also be adversely affected. SHKS would also be likewise and adversely affected. SHKS was clearly under a duty arising out of its quasi partnership relationship with NW to inform NW if they put a different interpretation to the contract between themselves. NW's assumption was related to such an essential matter with such a serious consequence that NW was entitled to expect SHKS would correct it of its misbelief. In the circumstances, SHKS must be under a duty to undeceive NW of its misunderstanding of the interpretation SHKS put to the Oral Agreement.

Conduct generally

123. I now turn to examine the conduct relied on by NW as giving rise to the common assumption. Mr Strachan, QC, submitted that SHKS's conduct after July 1990 may not be relied on as conduct creating the estoppel because by that date NW had entered into the NW/IGB Shareholders Agreement and it could place no reliance on any acts of SHKS after that day. With respect, I disagree. The agreement between NW and SHKS was a joint venture within the NW/IGB Joint Venture. It was conditional upon the NW/IGB Shareholders Agreement being executed and came into existence at the latest by 26 June 1992 when SHKS paid the purchase price for 12.5% of the GUP shares. In my view, SHKS's conduct before 26 June 1992 may be relied on by NW as conduct creating the estoppel, while its conduct after that day may be relied on as conduct confirming the common assumption or as admission.

The April 1990 negotiation, Memorandum, NW/IGB Shareholders Agreement, SHKS's two payments of deposit and audit confirmation

124. The starting point is the April 1990 negotiation when Henry Cheng accepted Tony Fung's offer for SHKS to participate in the Joint Venture. Henry Cheng told Tony Fung that SHKS had to pay the costs of constructing the hotels and apartment blocks according to the proportion of their investment in the Project which was 25%. SHKS paid two deposits in April 1990 and July 1990 upon receipt of a copy of the Memorandum and the NW/IGB Shareholders Agreement when they were signed. It paid in accordance with the terms of the Memorandum as if it were a party to the Memorandum. Mr Strachan, QC, submitted that the Memorandum and NW/IGB Shareholders Agreement cannot be held against SHKS as copies were given to SHKS after they had been signed, SHKS was not a party to these agreements, had given no input in their drafting process and were not representations by SHKS. As for the payments, he submitted that on their own they are colourless and are equally consistent with no obligation to advance shareholders loan as with such an obligation. With respect, I do not agree. Under the circumstances as I outlined above, SHKS must be taken to have represented by conduct that there was an existing contract between NW and SHKS in similar terms as the NW/IGB Shareholders Agreement, including a term that SHKS was under a like obligation to finance the Project if bank financing would not be available.

125. Mr Strachan, QC, argued that even within NW, the assumption could not be made out because NW was unable to agree within itself what the draft contract between NW and SHKS should contain and its solicitor was unable to get precise instructions as to the alleged obligations. He also referred to his submission on uncertainty of contractual terms and Osborne's opinion that there was no agreement between NW and SHKS. I have resolved those issues in favour of NW. It suffice to say that in consistently demanding SHKS for reimbursement of the expenses, the subscription for the rights issue and shareholders loans and in maintaining a statement of account of SHKS's outstanding payment, NW was clearly acting on that assumption or conventional basis.

126. NW also sought to rely on two letters dated 9 March 1991 and 10 January 1992 seeking audit confirmation in respect of payment of deposit "for the hotel project in Kuala Lumpur." These letters read in the light of the April 1990 negotiation, the Memorandum and the NW/IGB Shareholders Agreement may be taken as SHKS's communication that it assumed there was a valid agreement between the parties with obligation to contribute to shareholders loans.

SHKS's request for reduced participation

127. The next series of events relied on by NW is Tony Fung's request in April 1992 to reduce SHKS's participation in the Joint Venture to 12.5%. This request must have been made on the basis that the Oral Agreement was binding and hence SHKS felt it necessary to seek NW's consent to vary that agreement by reducing SHKS's participation in the Joint Venture. This is therefore another communication of SHKS's assumption of the existence of an agreement.

NW's letters of demands, Carson Wai/John Yip conversations, SHKS's payment of balance of 12.5% of GUP shares

128. The next series of events are NW's demand letters dated 3 October 1991, 5 May 1992 and 17 June 1992, NW's Progress Report dated 7 May 1992, John Yip's telephone conversations with Carson Wai on 29 May 1992 and 26 June 1992 and SHKS's letter dated 26 June 1992 making payment of the balance of the purchase price for the 12.5% shares in GUP. These events would be best considered together.

129. On 17 September 1991, GUP requested NW for financing. Pursuant to the assumption, Paul Tong requested SHKS to remit its contribution to shareholders loan of MYR160,000 on 3 October 1991. SHKS did not respond. NW made the advance on 9 October 1991 in respect of its own as well as SHKS's portion of the shareholders loan. Obviously, it had to do so under the terms of the NW/IGB Shareholders Agreement. On 5 May 1992, NW demanded repayment of $24,005,218.09 for the expenses, balance of the purchase price for 12.5% of the GUP shares and shareholders loans. Again, SHKS did not respond.

130. On 7 May 1992 Paul Tong sent the Progress Report to SHKS. In that report he set out the history of the Joint Venture and SHKS's participation. Paragraph 7 of the Progress Report states unequivocally that the construction costs and operation expenses would have to be funded by bank advances and shareholders loans and that NW and SHKS would be required to contribute 50% of the shareholders loan. Paragraph 9 sets out the amount of $24,005,218.09 due from SHKS as at 30 April 1992 with full details of the various sums.

131. Then on 29 May 1992, John Yip telephoned Carson Wai. I treat that as SHKS's response to Paul Tong's letter of 7 May 1992. Carson Wai made a file note of that conversation to the effect that John Yip promised to settle $24,005,218.09 soon. Though it is unlikely that one would be so specific as to dollars and cents when talking over the telephone about such a large amount of money, I have no doubt that the subject matter of that conversation was SHKS's payment in respond to NW's letter of 5 May 1992 and that John Yip did not dispute the amount demanded by NW. I have no doubt that Carson Wai was an honest witness. If John Yip had disputed any amount, he would have noted that down and the dispute would have been taken up through Paul Tong and thence to Henry Cheng and Tony Fung. That did not occur. What most probably happened was that John Yip agreed to pay without mentioning any amount or which sum and Carson Wai happily wrote down the precise amount that was in his mind and that was the amount he calculated in the Progress Report. I find that John Yip was silent to the various amounts demanded in NW's letter of 5 May 1992 and in his conversation with Carson Wai on 29 May 1992. SHKS was under a duty to undeceive. In the circumstances, John Yip's silence may be taken as SHKS's communication of its acceptance of the assumption held by NW.

132. SHKS did not pay any amount as John Yip had promised. NW issued a third demand letter on 17 June 1992. Then John Yip telephoned Carson Wai on 26 June 1992. Carson Wai caused a typewritten note to be prepared after the conversation. The note recorded that John Yip of SHKS called and then the precise calculation of the balance of the purchase price for 1.25% GUP shares and the exchange rate, the calculation of 25% of SHKS's reimbursement of the expenses and the total amount of $23,756,955.59. This is short of the two shareholders loans to make up $24,005,218.09 as noted by Carson Wai during the earlier conversation. Had there been an admission of liability to pay the amount in full, Carson Wai must have recorded an account of what John Yip had said as to when SHKS would pay or why it would not pay then. Had there been a denial, Carson Wai must have taken up the matter with Paul Tong and thence to Henry Cheng and Tony Fung. I find that John Yip mentioned nothing about the shareholders loans, neither admission nor denial of liability to pay. I have no difficulty in finding that SHKS admitted liability to the expenses but was silent as to its obligation to contribute to shareholders loans. Such silence also amounted to an acknowledgement of their common assumption in view of SHKS's duty to undeceive.

133. Then came SHKS's payment of $23,141,250 on 26 June 1992, representing only the balance of the price for the 12.5% of the GUP shares. That was all that SHKS paid. SHKS gave no reason why it did not pay the full amount demanded. The difference is a small one in view of the total amount involved, which made the partial payment significant. The three payments up to 26 June 1992 together added up to just the purchase price for the 12.5% of the shares in GUP. By itself, the inference to be drawn from these payments is that SHKS considered its obligation was limited to the price for the shares only. However, when these payments are considered in their proper context, including SHKS's duty to undeceive and the contents of the April 1990 negotiations, Clause 2(d) and 7(d) of the Memorandum and Clause 16.2 of the NW/IGB Shareholders Agreement which SHKS had knowledge of before making the three payments and its admission of liability for the expenses during John Yip's telephone conversation with Carson Wai on 26 June 1992, the irresistible inference to be drawn from these payments and SHKS's silence is an implied admission of its obligation to pay the shareholders loans and a confirmation of NW's assumption of the same. These must be all the conduct that NW can rely on as creating the estoppel. The events that follow can only be conduct after the facts giving rise to the estoppel.

SHKS's silence to NW's letters of demand from 1 July1992 to April 1996

134. NW kept SHKS informed of the progress in seeking bank financing and kept SHKS informed as to when and the amount of shareholders loans required. SHKS did not respond. When the shareholders loans were advanced, NW demanded contribution from SHKS. Numerous such requests had been made between 1 July 1992 and 28 September 1992 and again between May 1993 and April 1996. SHKS never responded. SHKS's explanation for the lack of response is that John Yip had reported to Tony Fung and Tony Fung had reverted to Henry Cheng telling him to ask his staff to stop those demands. I have rejected Tony Fung's and John Yip's evidence. I therefore find that SHKS made no response to those numerous demands for reimbursement of the expenses, contribution to shareholders loans and subscription for the rights issue.

135. Mr Strachan, QC, submitted that these letters cannot give rise to an estoppel as they were sent after the NW/IGB Shareholders Agreement was executed and there had been no reliance and no detriment. In my view, SHKS's silence while under a duty to undeceive amounted to implied continued admissions and repeated confirmations of NW's assumption and may even raise estoppel in respect of the shareholders loans made subsequent to these demands. The significance of these events does not lie in SHKS's silence as an implied confirmation of the common assumption but they showed the detriment suffered by NW in making further advances on behalf of SHKS as a result of its silence.

Carson Wai's and John Yip's lunch on 9 March 1995, Tony Fung's confirmation of SHKS's commitment in April 1996, Carson Wai/John Yip lunch meeting on 28 May 1996

136. Next, I turn to the lunch meeting between John Yip and Carson Wai on 9 March 1995 in which John Yip said the principle was NW would provide the necessary funding for SHKS in excess of the project loan at a rate of interest to be agreed. I have rejected SHKS's interpretation of the meaning of these words. I find that they amounted to an acknowledgment that SHKS was under an obligation to advance shareholders loans to GUP under the Oral Agreement and if the funding was provided by NW for SHKS, SHKS would pay interest to NW at a rate of interest to be agreed.

137. A number of events occurred shortly before SHKS's takeover by the Lees family. These events may be considered together as they all have the same effect. In April 1996, Tony Fung confirmed to Henry Cheng that SHKS would honour the commitments under the Oral Agreement. Then on 28 May 1996, John Yip, Carson Wai and Christopher Lam had another lunch meeting. During that meeting John Yip reconfirmed SHKS's obligation to contribute to the shareholders loans and requested for audited reports and accounts of GUP. All these events may be taken as SHKS's continued confirmation of the common assumption and admission of its liability under the common assumption.

SHKS's conduct under the new management

138. SHKS's conduct under the new management may also be considered together. First, there were the two lunch meetings between Henry Cheng, Lee Seng Hui and Lee Ming Tee on 5 July 1996 and 8 August 1996. I reject Lees' evidence and accept Henry Cheng's evidence that SHKS acknowledged its liability to the shareholders loans during these two lunch meetings.

139. Secondly, on 9 December 1996, TH Chung and David Hui attended a shareholders meeting of Stapleton in which Carson Wai rejected SHKS's proposal of converting the amount of its investment to-date into a relative percentage shareholding in Stapleton. SHKS's offer must be premised on the basis that it was liable to contribute to the shareholders loans.

140. Then, in a letter dated 18 December 1997, Arthur Dew repeated what John Yip had said during the lunch meeting with Carson Wai on 9 March 1995 that NW would advance the shareholders loans for SHKS and SHKS would compensate NW by paying interest at a rate to be agreed. This is evidence that SHKS was sharing a common assumption but it takes the matter no further than what John Yip had said during the lunch meeting in 1995.

141. All these incidents may be taken as SHKS's implied continued admissions and repeated confirmations of NW's assumption and evidence of SHKS's admission of its liability in respect of shareholders loans previously advanced. These incidents also raised estoppel in respect of shareholders loans made after these dates.

142. On these evidence I am satisfied that the parties shared a common assumption that they had entered into a binding contractual relationship under which SHKS was obliged to pay the expenses and to contribute to the shareholders loans proportionate to its interest in the Joint Venture. I am also satisfied that acting on that common assumption NW paid the expenses and advanced the shareholders loans on its own behalf and on behalf of SHKS. The ultimate issue is whether it would be inequitable to allow SHKS to resile from that common assumption or conventional basis.

Unjust or unconscionable

143. The basis of estoppel by convention, as indeed of any form of estoppel, is the interposition of equity. What then are the dealings which would make it inequitable to allow SHKS to resile from the common assumption?

144. On the facts as I found them, the estoppel was created on 26 June 1992 when SHKS paid the balance of the purchase price for 25% of the shares of GUP. By that act of payment and its silence to NW's demands for reimbursement of the expenses and contribution to shareholders loans, SHKS confirmed the common assumption held by the parties. NW considered there was a binding contract between the parties with SHKS taking 25% interest in the Joint Venture and providing 25% of the financing required for the completion of the Project. That was the conventional basis on which NW conducted its affairs. On that basis, it advanced the full 50% of the financing under the NW/IGB Shareholders Agreement. Mr Strachan, QC, submitted that NW had already been committed to the terms of the NW/IGB Shareholders Agreement when it was executed and could not have suffered any detriment as a result of the common assumption which arose after the NW/IGB Shareholders Agreement was signed. With respect, counsel failed to appreciate the reality of the situation. Though the original intention was for SHKS to acquire a direct interest in GUP, by May 1991, the arrangement as agreed between the parties was for NW to hold the GUP shares on trust for SHKS. Thus SHKS would participate in the Joint Venture under the umbrella of NW. While NW remained obligated to contribute to 50% of the required financing, the common assumption between NW and SHKS was that SHKS would contribute 25% of the shareholders loans advanced by NW to GUP. SHKS did not make the contribution and kept NW out of its money. That is the detriment.

145. There is no evidence of what NW could or would have done had SHKS unequivocally denied its obligation to pay in June 1992. NW was still obligated to advance shareholders loans. There is no evidence that NW had other parties in mind to download the investment to. Mr Strachan, QC, refuted NW's claim that it may not have accepted the first and second payments from SHKS and that it may not have agreed to hold the GUP shares as nominee for SHKS as these could not have been detriments. He also rightly refuted NW's claim that NW might have negotiated a satisfactory resolution with SHKS or sued SHKS as the option is still open to NW and suing SHKS is what NW is now doing.

146. Be that as it may, the reality is that NW was obliged to make the advances without a proportionate contribution from SHKS. NW will be kept out of its money in respect of SHKS's contribution until GUP shall have the ability to repay the loans. NW's exposure to the Project was increased by one third. Its financial outlay and business risk were likewise increased by one third. If the Project fails, not only will NW lose its contribution of the shareholders loans, it will have to cover the loss which would have been SHKS's. In respect of SHKS's share of the shareholders loans, NW would be left with a remedy against GUP only which in effect is a remedy against itself, instead of a remedy against a third party, namely SHKS. Had SHKS unequivocally denied its obligation to pay, NW could have looked for other joint venture partners if it wished to or knowingly assumed the additional investment and guarded itself against the additional risks involved. NW could have reduced its risks by exercising more diligence in seeking additional third party financing. These are real detriments. In my view, the stage has reached where the parties are estopped from denying the validity of the common assumption which the parties have been acting on and it would be inequitable to allow SHKS to resile from that common assumption.

LIMITATION

147. SHKS pleaded section 4 of the Limitation Ordinance, Cap 347, which bars any action after six years from the date of right of action. Since the writ was issued on 25 February 1999, SHKS claims that any money demanded by NW before 25 March 1993 is barred. In my view, this plea must fail. There is clear evidence of acknowledgement on the part of SHKS in Arthur Dew's letter dated 18 December 1997 with the result that NW's right shall be deemed under section 23(3) of the Limitation Ordinance to have accrued on the date of the acknowledgement. In that letter, he wrote:

"... I have to advise that our position in this matter is as follows ...

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 ..."

148. In addition, through its various letters claiming for 12.5% of the shares in GUP dated 18 December 1997, 3 March 1998 and 7 April 1998, SHKS was effectively acknowledging that at least in respect of the subscription for the rights issue for it could not have maintained a claim for 25% of the interest in GUP without paying for the rights issue.

149. The Plaintiffs also relied on section 26(1)(b) of the Limitation Ordinance. They pleaded that SHKS has deliberately concealed its true intention or plan to repudiate the relationship which the parties had been acting on with the result that the Plaintiffs continued to act under the mistaken belief that SHKS did not intend or plan to repudiate its obligation to contribute to the expenses and shareholders loans. The way in which reliance is placed by the Plaintiffs on section 26(1)(b) is novel. In effect, the Plaintiffs are pleading that by SHKS's concealment of its intention not to pay, time does not start to run against the Plaintiffs. Mr Chan, SC, cited no authority in support of the interpretation he put to section 26(1)(b). Neither can I find any. The purpose and effect of the section is to extend the limitation period where "any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant". A fact relevant to the plaintiff's right of action must be a fact which is relevant to that which gives rise to the plaintiff's right of action and without which the right of action would be incomplete. If in breach of a contract, a seller supplies defective goods to a buyer, the defect in the goods is a fact relevant to the right of action but not the supplier's subjective intention to supply defective goods or to deceive. Knowledge of the subjective intention of the supplier has nothing to add to the right of action, but the concealment of the defect prevents the buyer from realising that he has a right of action. It is the concealment of the latter fact which section 26(1)(b) seeks to prevent so that a defendant may not use the statute as a means of fraud. Likewise, NW's right of action is SHKS's non-payment. NW knew it had a right of action by reason of SHKS's non payment. This right of action is complete whether SHKS intended to pay or not and whether NW knew of SHKS's intention one way or the other. While a person's unexpressed intention is as much a fact as his express statement of intention, SHKS's intention not to pay or its intention to repudiate the relationship between itself and NW is far from being a fact relevant to the plaintiff's right of action. However, I am satisfied that because of the acknowledgement by Arthur Dew, NW's right of action is not barred under the Limitation Ordinance.

SHKS'S COUNTERCLAIM

150. SHKS's pleaded case on the counterclaim is that in or about April 1992, SHKS further negotiated its participation in the acquisition of the GUP shares (the "June agreement"). SHKS was not prepared to participate further in the acquisition until it had secured a direct and exclusive interest in GUP. In order to secure the same, NW and SHKS agreed that SHKS would contribute to the acquisition by taking a direct interest in 12.5% of the share capital of GUP, that Stapleton would hold those shares on trust for and/or as nominee of SHKS and SHKS's contribution be appropriately reduced. SHKS further pleaded that in breach of the June agreement, NW failed, among its other obligations, to procure Stapleton to execute a deed of trust in favour of SHKS in relation to the GUP shares and to seek FIC approval for the proposed transfer of the beneficial ownership of the GUP shares to SHKS. Hence, SHKS claimed rescission of the June agreement, damages for breach and return of the three payments made to NW.

151. 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.

CONCLUSION

152. I have found that SHKS was in breach of its obligation under the Oral Agreement. Mr Strachan, QC, submitted that the Plaintiffs have suffered no loss or failed to prove their loss. They advanced loans to GUP to which they were obliged to make loans and which will repay those loans in due course, together with interest and that there is nothing to suggest GUP will not be in a position to repay the loans. With respect, this argument does not address the fact that SHKS was under an obligation to contribute to the expenses and shareholders loans and as a result of SHKS's breach, NW was required to make those payments on behalf of SHKS and hence be kept out of its money for substantial period of time. It does not address the question of risk which I have referred to earlier. NW should not be asked to assume SHKS's risk if the shareholders loans should become unrecoverable. Furthermore, SHKS's argument has no application at least in respect of NW's claim for reimbursement of SHKS's share of expenses and subscriptions for the rights issue. I also do not agree with the submission that the Plaintiffs have failed to prove their loss. The loss is simply the funds or the use of the funds that NW advanced to GUP on SHKS's behalf and the interest for being kept out of its money.

153. Mr Strachan, QC, raised the issue of double recovery if NW is successful in these proceedings. I do not think the issue of double recovery would arise. If the shareholders loans and interest are repaid by GUP to Stapleton, the funds will be held as to one quarter on trust for SHKS. If SHKS has paid the judgement debt, Stapleton shall account to SHKS in respect of its share.

154. On my finding, NW and SHKS are parties to the Oral Agreement. It was on the basis of the Oral Agreement that NW made funds available to Stapleton for the purpose of advancing to GUP to finance the Project. The Project has now been accomplished. As such, an order for specific performance requiring SHKS to make monetary payment as and when the shareholders loans were required would be inappropriate. NW should be compensated by damages, interest and costs. Stapleton, not being a party to the Oral Agreement or the party providing the funds for advancing to GUP, is not entitled to any relief.

155. The amount SHKS is liable to pay in respect of its share of the expenses, the subscription for the rights issue and the shareholders loans are respectively, $590,653.03, $2,120,987.50 and $77,406,012.19, making a total of $80,117,652.72. In addition, there is a claim for interest. Mr Chan, SC, referred to Komala Deccof & Co. S.A. and others And Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 and suggested that interest should be awarded at 1% above prime rate or alternatively at the lower rate as claimed by NW in its correspondence, i.e. the conventional basis. There is no agreement as to the rate of interest NW was entitled to charge SHKS. As the parties were in effect partners to a joint venture, I consider the commercial rate of 1% above prime rate inappropriate. In any event, we have seen in Hong Kong, especially in the recent years, that lending rate is fixed at a percentage below prime rate. For the size of the loan in this case, NW could probably obtain financing at very preferential rates. In view of the partnership nature of the relation between NW and SHKS, I consider it more appropriate that interest should be charged at the cost to NW plus a small margin. I assess the interest to be that which NW claimed under the conventional basis. On that basis, I assess the interest up to 18 December 1996, the date of issue of the writ for the Expense, the subscription for the rights issue and shareholders loans to be $248,010.28, 940,643.43 and 24,227,711.79 respectively, making a total of $25,416,365.50.

156. Accordingly, I enter judgment in favour of NW against SHKS in the amount of $105,534,018.22 together with interest on the principal sum of $80,117,652.72 at judgment rate from 18 December 1996. SHKS's counterclaims against NW and Stapleton are dismissed. I also make a costs order nisi that SHKS shall pay NW's costs and that there be no order as to costs as between Stapleton and SHKS.