CHOW FU HSIEN v. K VISION INTERNATIONAL INVESTMENT (HK) LTD

HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

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D E C I S I O N

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Background:

1.  There is no dispute between the parties that in 1994, it was agreed between Ms Chow and Mr Qu, of K Vision, that in consideration of Ms Chow applying her professional knowledge and skills to the business of a joint-venture company, Beijing K Vision Building Construction Company Ltd, (Beijing K Vision) in relation to a building project in Beijing known as Celebrity Plaza, Ms Chow would be entitled to 35% of the interest of K Vision.  K Vision was a 20% partner in the joint-venture company.

2.  By a deed made on an unknown day in 1988, K Vision acknowledged that Ms Chow has a 35% interest in the 20% share held by K Vision in the joint-venture project.  The deed records that K Vision would hold Ms Chow’s 35% interest as trustee for her.  The deed further records that at the request of Chow, K Vision and Mr Qu Hong, and Ms Lam Yin, both directors of K Vision, and themselves signatories to the deed, would execute all relevant documents to ensure that the terms of the deed were effectively carried out.

3.  Now Ms Chow sues K Vision to enforce the deed.  By a writ issued in 2004, Ms Chow seeks a declaration that the deed is a valid, subsisting and binding obligation on K Vision, and an order that K Vision pay to her such sum as is found due upon the taking of an account.

4.  In January 2005, Ms Chow filed a summons for summary judgment which, following the signing of a number of affidavits, came before the Master on 19 July 2007.  The Master gave summary judgment to Ms Chow.  From that judgment, K Vision now appeals.

The deed:

5.  There is no dispute that all of the necessary formalities of a deed, that it is, that it is written on paper, that it contains the parties names, that the recitals state facts on which the act to be evidenced by the deed is grounded, that it is signed by the parties, that it is sealed, and that there has been delivery, are present. 

6.  Other than the addition of the number “8”, to the provision of the numbers “199 ” in the deed, thereby signifying that it was signed in 1998, no complete date has been endorsed upon the deed.  A date is not essential on a deed; a deed takes effect on its date of delivery: see Chitty on Contracts Vol 1 para 1-083. 

7.  There is no limitation issue.  A deed is a specialty, the limitation period for an action on a specialty being 12 years: s 4 Limitation Ordinance Cap 347.

The defence claimed:

8.  The affidavits for K Vision acknowledge that in 1994, K Vision agreed to give to Ms Chow 35% of its interest in the joint-venture project and that it would hold that interest on trust for Ms Chow, who was entitled to demand transfer of the 35% interest from K Vision at any time.  The consideration for that agreement was an agreement by Ms Chow to provide services to be joint-venture in relation to Celebrity Plaza.

9.  Neither party suggests that Ms Chow’s interest was to be a specific monetary sum, and that at the time of the original agreement in 1994, that sum was represented by the 35% interest.  Consequently it is clear that Ms Chow’s interest was to have such value as it had, at the time a demand for transfer was made.

10.  The case for K Vision is that the deed is merely a record of an arrangement made in 1994, which had been superseded by undisputed intervening events prior to 1994, and the making of the deed in 1998.  It is contended that the deed was made as Ms Chow requested, for her own purposes, a document evidencing the arrangement that had been previously made, but discharged.

11.  To justify the assertion that the arrangement made in 1994, was superseded by intervening events, Mr Qu of K Vision says that in July 1995, at the request of Ms Chow, 550,000 shares in K Vision, owned by Mr Qu, (55% of the share capital), were, at the request of Ms Chow, transferred to her brother Mr Chow Fu Chu, who was acting as a nominee for Ms Chow.  These shares were then transferred by Mr Chow to Ms Chow on 4 November 1996.  The affidavit for K Vision asserts that this transaction was by way of replacement for the trust agreement that had been made in 1994.

12.  Mr Qu asserts that in January 1997, Ms Chow, who, he says, had not contributed to the Celebrity Plaza project, was satisfied that by way of her own company she could invest in PRC property without using K Vision as a vehicle.  Consequently, he says, she agreed to give up her interest in K Vision and transferred the 550,000 shares back to Mr Qu.

13.  Mr Qu does not suggest that there was any monetary consideration paid to Ms Chow on this transaction.  Rather, he asserts that she “agreed to give up” for interest in K Vision.

The answer to the defence:

14.  Ms Chow, for her part, acknowledges the fact of the share transaction between Mr Qu and herself, by way of her brother, but explains it as part of a device whereby K Vision could present itself to a prospective investor as being a company in which Mr Qu was not a majority shareholder, that investor being anticipated to be reluctant to invest if it knew that Mr Qu was a majority shareholder.

Is the defence arguable?

15.  Mr Coleman frankly acknowledges that the proposition that he must advance constitutes an assertion that K Vision, and its directors, have entered into a solemn deed acknowledging that K Vision is bound by a trust, in circumstances where, some years previously, that obligation was fully discharged.  He is obliged to accept that no mention is made of that situation in the recitals to the deed.  In the absence of any reference to the so-called “superseding events” in the deed, the proposition is one which will require cogent evidence to substantiate an assertion that it is arguable.

16.  Mr Coleman explains the absence of those circumstances from the recitals by pointing to the fact that the deed was prepared by Ms Chow’s solicitors and that she would have no reason to include them.

17.  But at the same time, K Vision had every reason to include those circumstances in the recitals.  There is no explanation as to why the superseding events were not included at the request of K Vision. 

18.  On the face of the document, it records an outstanding and undischarged obligation.  There is no suggestion that K Vision and its directors were required to sign the documents in the presence of Ms Chow’s solicitors, (who prepared the deed).  There is no suggestion that K Vision or its directors were not able to take their own legal advice on the deed. 

19.  Thus, in the absence of an arguable explanation for the absence of those recitals, the only inference to be drawn from the absence from the recitals to the deed, of the circumstances now contended for, is that the obligation was still outstanding.

20.  So it is necessary to look at the circumstances now contended for to see if they are believable or arguable.

Discussion:

21.  In his first affidavit, made in January 2007, Mr Qu had this to say by way of explanation for the making of the deed:

“

For her own reason which is not entirely clear to me, (Ms Chow) later requested (K Vision) to reduce the (1994) Agreement into writing in the form of Deed of Trust.  Give my good relationship with (Ms Chow) at that time, I did not object to (Ms Chow’s) request as long as it would assist (Ms Chow) to achieve her own purposes.”

In a subsequent affidavit, made as recently as 29 January 2008, Mr Qu explained the making of the deed in this way:

“	(Ms Chow) represented to me that this was to facilitate negotiation with others in new property development projects.  As such I believe that the execution of a deed of trust would only serve as a record of the (1994) Agreement.”

22.  No explanation is offered by Mr Qu as to why he is now able to give a clear reason for the making of the deed.  In any event the explanation is unbelievable.  It is not in dispute that Ms Chow is herself a substantial property developer.  No sensible explanation is made as to why she would need such a document to “facilitate negotiation with others”.  It is simply unbelievable that an experienced businessman such as Mr Qu would, for this reason, agree to enter into a deed containing an obligation that had been fully discharged, without recording anywhere the fact that the obligation has been discharged.

23.  Ms Wong refers me to the decision of the Court of Appeal in Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262, a case in which a plaintiff sued on a document which the defendant asserted was a sham.  A number of undisputable documents arguably substantiated the proposition that the document sued upon was a sham.  Unconditional leave to defend was granted.  In the present case, she argued, there were no such documents.

24.  Mr Coleman replied by pointing to the share transfers evidencing the transfer of the 55% interest in K Vision to Ms Chow in July 1995, and contended that those documents must give rise to a suspicion that Ms Chow had received all that to which she was entitled.

25.  I reject the proposition.  Here, the documents relied upon rather than arguably substantiating Mr Qu’s explanation for them, are showing of a simple analysis not to support his explanation at all, but rather to wholly substantiate Ms Chow’s version of events.

26.  First, no explanation is offered as to why Mr Qu would transfer a 55% interest in K Vision to Ms Chow when she was only entitled to demand a 35% interest.  If the July 1995, share transfer was in satisfaction of the trust obligation it would have been a transfer of a 35% interest.  If the transfer of the 55% interest was in satisfaction for Ms Chow’s right to demand a 35% interest, then there should be some proper explanation from Mr Qu of the difference.  That is especially so when regard is had to the evidence as to the value of the interest, (as to which see below).   He offers no explanation at all is the way Ms Chow should receive a further 20% interest above that to which she was entitled.

27.  Second, the suggestion that she would simply “return”, or “give up” the shares to Mr Qu in January 1997, for no consideration at all, is simply unbelievable. 

28.  The unchallenged evidence establishes that in September 1995, K Vision sold 55% of the shares it held in Beijing K Vision to Sino Scientific International Trust Investment Company, for RMB294,518 200,000.  Next, in September 1996, K Vision sold a 25% shareholding in Beijing K Vision to Far East Petroleum Company Ltd for US$17,238,000, (HK$134,456,400).

29.  On any terms, these transactions indicate that both a 55% and a 35% interest in K Vision, both in July 1995, and in January 1997, were worth a very substantial sum of money, probably in the order of HK$175 million.  It must be borne in mind that in January 1997, the Asian Financial Crisis had not yet arrived and markets, including property markets throughout the region, were booming.  It is simply not believable that a person would “give up” such an interest for no consideration at all. 

30.  Third, the fact that Ms Chow did not receive any documentation in relation to the transfer to her brother, or to her, of the 55% interest, and that she transferred the interest back to Mr Qu for no consideration at all, is entirely consistent with the reason given by Ms Chow for the transaction.

31.  Fourth, that the 55% interest was transferred to Ms Chow, not to satisfy the claim she had for a 35% beneficial interest pursuant to a trust, but as part of a scheme to enable a third-party investor to be brought in, is entirely consistent with there being no reference to that transaction in the recitals to the deed.  It is consistent with there being no reference to the transaction in the deed on the basis that it was entirely unrelated to the obligation recorded by the deed.  On the other hand, anyone entering into the deed in the circumstances of K Vision and its directors would undoubtedly be anxious to ensure that the deed recorded that the obligation had been discharged.

32.  Mr Coleman pointed out that in litigation before Kwan J in December 2005, in which attempts were being made to wind up K Vision, the judge was of the view that the application, together with other legal actions in Hong Kong, including these proceedings, were part of what she described as “a concerted move against (K Vision).”  Mr Coleman relied upon this to say that the transaction now sued on should be viewed with suspicion.

33.  It is quite understandable that on a discretionary matter such as the appointment of liquidators, a judge might look at a whole series of matters, particularly a whole range of other litigation between the same parties, in the exercise of the discretion. 

34.  But it must be remembered that in the proceedings then before the court, Ms Chow, although apparently being aware of the proceedings, was not represented or heard. 

35.  There is no doubt as to the existence of the original agreement, that is not denied by Mr Qu.  Neither can the existence of the deed and its plain terms be denied.  While Kwan J may have been perfectly right to view the whole series of proceedings, collectively, as a suspiciously concerted move, that is a conclusion which might well have been reached even though one of the sets of proceedings referred to, (but not examined by the judge), was entirely justified.

36.  The fact that there is other ongoing litigation between the parties does not weigh in favour of the assertions made by Mr Qu.

37.  Mr Coleman relied upon Extraktionstechnik Gesellschaft für Anlagenbau GmbH v Oskar (1984) SJ 417, (applied in Billion Silver), where it was held that where there are unexplained features of both the claim and defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success or the parties or the relative strengths of the good or bad faith and should give unconditional leave to defend. 

38.  Unlike that case, there is nothing false or questionable about the basis of the claim made by Ms Chow.  It is simply a straightforward claim on a deed for a perfectly understandable, and in the circumstances of this case, undisputed, entitlement by a beneficiary to a trust.  In answer to the claim the defendant puts forward another transaction which it says has discharged the entitlement. 

39.  This is not a case in the category ofExtraktionstechnik, where both the claim and the defendants had disturbing features. In this case it is simply the plaintiff’s response to the defence which exposes, openly, a questionable business dealing.  No effort has been made by Ms Chow to hide the true nature of this dealing which, being quite unrelated to the deed upon which she sued, need not have been referred to until raised by Mr Qu.

40.  Unlike the judge at first instance, and the Court of Appeal, in Billion Silver, notwithstanding her involvement in a questionable business dealing, I am left with no suspicion at all in relation to Ms Chow’s case.

Conclusion:

41.  I accordingly hold that no arguable defence is disclosed.  The application to summary judgment was correctly dismissed by the Master.  The appeal fails.  The defendant must pay Ms Chow’s costs on the appeal.  There will be a certificate for two counsel.