CHIM PUI CHUNG v. XIAO GUANG KEVIN AND ANOTHER

HCA 2118/2015

[2025] HKCFI 2275

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2118 OF 2015

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J U D G M E N T

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1.  Introduction

1.1  In these proceedings, the Plaintiff (“P”) seeks to recover the principal sums of HK$26,000,000 and RMB20,000,000 (collectively “Sums”) from the 1^st and 2^nd Defendants (respectively “D1” and “D2” and collectively “Ds”). It is P’s case that the Sums were advanced pursuant to a loan agreement concluded between the parties in or about July/August 2012 on terms that the Sums were repayable within 12 months bearing interest rate of 12% per annum (“Alleged Loan Agreement”). It is P’s case that the Alleged Loan Agreement was reached orally between P and D2 acting for himself and for and on behalf of D1.

1.2  D1 and D2 deny liability but for different reasons:

(1)  D1 asserts that he has no knowledge of the Alleged Loan Agreement and, at all material times, had never appointed D2 as his agent to procure the Sums from P;

(2)  D2 asserts that (a) the Sums, rather than advanced pursuant to the Alleged Loan Agreement, in fact represented P’s initial investment in a mining project in the Mainland (“Mining Project”) developed by a company called 華陰龍王石業責任公司 (“Longwang”) which became abortive and (2) the present proceedings represent an unjustified attempt on P’s part to recover from D2 his loss for the abortive investment.

1.3  At the trial, P was represented by Mr Richard Leung (with Mr Tommy Cheung) and D1 by Ms Mandy Yau. D2 was previously represented but acted in person at the trial.

1.4  In terms of witnesses, P himself gave evidence and called 葉一鳴先生 (“Mr Yip”). D1 and D2 gave evidence and D2 further called 王建剛先生 (“Mr Wang”). Mr Wang is and was at the material time the legal representative, managing director and a shareholder of Longwang.

2.  Basic facts

2.1  The matters set out in this section are not in dispute or are indisputable by reference to the contemporaneous documents.

2.2  Mr Yip and P have been friends since 2005. On occasions, Mr Yip would introduce investment opportunities to P.

2.3  Mr Yip met D2 in 2012 and he thereafter introduced D2 to P. Prior to the Alleged Loan Agreement, neither Mr Yip or P had met D1.

2.4  On 30 July 2012, P parted with the Sums in the following manner:

(1)  P issued 2 cheques dated 30 July 2012 in favour of Royal Asia International Limited (“Royal Asia”) for a total sum of HK$26,000,000;

(2)  Through his agent, P remitted a sum of RMB20,000,000 into the bank account of 珠海市鑫鋒發展有限公司 (“Zhuhai Company”).

2.5  Thereafter:

(1)  Two documents titled “收款收據Gathering Receipt” bearing the chop of Zhuhai Company and signed by D2 were issued (“Gathering Receipts”), acknowledging the receipt of the Sums;

(2)  An undated cheque was issued by Royal Asia in favour of P (signed by D2) in the sum of HK$26,000,000 (“Royal Asia Cheque”);

(3)  2 undated cheques, each in the sum of RMB10,000,000, were issued by Zhuhai Company (signed by D2) in favour of P (Zhuhai Company Cheques”).

2.6  According to the annual returns of Royal Asia, D1 was until 21 August 2013 an overwhelming majority shareholder and a director. On 21 August 2013, Joint Expert Global Limited (“Joint Expert”) became the 100% shareholder of Royal Asia and D1 remained a director.

2.7  On 31 March 2014, Sunway International Holdings Ltd (“Sunway”), a listed company, issued a circular (“31/3/14 Circular”) by which a notice to convene a Special General Meeting was set out. Included in the 31/3/14 Circular was a letter from Sunway’s board of directors to the shareholders dated 31 March 2014 which set out the following information:

(1)  D1 was the legal and beneficial owner of the entire issued share capital of Joint Expert;

(2)  Joint Expert was an investment holding company and had not commenced any business operation except for its indirect holding in Zhuhai Hoston Special Materials Co Ltd (“Zhuhai Hoston”) and 廣東恒佳建材股份有限公司 (“Guandgong Hengjia” and together with Joint Expert and Zhuhai Hoston “Joint Expert Group”);

(3)  D2 was the guarantor of D1;

(4)  On 30 January 2024, Sunway’s board announced that it and its wholly-owned subsidiary First Billion Global Limited (“First Billion”) (as purchaser) entered into a sale and purchase agreement with D1 (as vendor) and D2 (as guarantor) pursuant to which D1 agreed to sell and First Billion agreed to purchase the entire issued share capital of Joint Expert and certain shareholder’s loan due from Royal Asia to D1 (“Shareholder’s Loan”) at a consideration of HK$550 million;

(5)  Royal Asia was a wholly-owned subsidiary of Joint Expert and save and except for its 95% equity interest in Zhuhai Hoston and the Shareholder’s Loan, Royal Asia did not have other material assets and liabilities;

(6)  Zhuhai Hoston in turn owned 70% equity interest in Guangdong Hengjia;

(7)  Zhuhai Hoston was principally engaged in the business of research and development, production and sale of pre-stressed steel bars, steel strand wires, various pre-stressed materials and their respective production equipment and industrial and building pre-stressed materials;

(8)  Guangdong Hengjia was principally engaged in the business of production and sale of pre-stressed high-strength concrete piles, tubular cement products, high strength ready mixed concrete, autoclaved sand-lime bricks, aerated concrete products and permeable concrete products;

(9)  The management team of the Join Expert Group included D2, who was described as (a) the legal representative and chairman of Zhuhai Hoston, (b) being responsible for the daily management and operations of Zhuhai Hoston since late 1995 and (c) having in depth understanding of the business operations of Zhuhai Hoston and all other related aspects;

(10)  Notably D1 was not described as being part of the management team of the Joint Expert Group.

2.8  On 2 May 2014, Sunway announced the completion of the acquisition of the Joint Expert Group.

2.9  Thereafter, by a document titled 信託聲明確認書dated 2 January 2015 and signed by D1 and D2 (“Confirmation of Trust”), D1 acknowledged inter alia (1) that D2 was the beneficial owner of Joint Expert and the Shareholder’s Loan and that he had received the consideration paid by Sunway, (2) that D2 was the beneficial owner of the consideration received and (3) that he would deal with the consideration received for the sale of Joint Expert and the Shareholder’s Loan according to D2’s instructions.

2.10  On 12 August 2015, the Municipal Government of 華陰市issued a directive halting all mining operations due to, inter alia, environmental considerations (“August 2015 Directive”).

2.11  On or about 1 September 2015, P presented the Royal Asia Cheque but it was dishonoured upon presentation.

3.  The evidence

3.1  The evidence of P may be summarized as follows:

(1)  D2, Mr Yip and he had dinner[1] 3-5 times in Zhuhai and Hong Kong in July or August 2012, at which D2, representing himself and D1, orally requested P to extend a loan in the approximate sum of HK$50,000,000. He eventually agreed and the Alleged Loan Agreement was concluded;

(2)  P further said that it was a term of the Alleged Loan Agreement that D2, representing himself and D1, was to provide security for the Sums by issuing post-dated cheques in the equivalent amount;

(3)  Pursuant to the Alleged Loan Agreement, he issued 2 personal cheques dated 30 July 2012 in favour of Royal Asia in the total sum of HK$26,000,000 and requested Mr Yip to handover the cheques to D2;

(4)  He further procured his agents in the Mainland, to remit RMB20,000,000 to Zhuhai Company’s bank account;

(5)  In August 2012, D2 and/or D1 procured Zhuhai Company to issue the Gathering Receipts which were handed over at first instance to Mr Yip and then handed over to P;

(6)  Also in August 2012, D2 handed over to Mr Yip the Royal Asia Cheque and the Zhuhai Company Cheques which were then handed over to P;

(7)  At the end of 2014, as no repayment was made under the Alleged Loan Agreement, he requested Mr Yip to demand repayment of the principal sum and interest from D2;

(8)  As D2 did not comply with the demands, he eventually presented the Royal Asia Cheque but it was dishonoured upon presentation;

(9)  He accepted that in 2012 he was introduced to the Mining Project by Mr Yip and they together with D2 made a visit to the site of the Mining Project;

(10)  However, he eventually decided against investing in the Mining Project due to its unfavourable location;

(11)  He denied that the Sums represented his investment in the Mining Project;

(12)  In his oral evidence, he explained that even though he had only been acquainted with D2 for a short time, he was willing to extend a loan on the basis that D2 had told him that the Sums were intended for investment in real estate in the Mainland. He further said that he only chased for the Sums in late 2014 because he was preoccupied with fulfilling his duties as a legislative councillor and he did so soon after his term ended.

3.2  Mr Yip’s evidence may be summarized as follows:

(1)  He met D2 in the Mainland in 2012 and had cooperated with D2 in certain business ventures. He then introduced D2 to P;

(2)  He had dinner 3-5 times with P and D2 and on those occasions D2 orally requested a loan of HK$50,000,000 from P;

(3)  P later told him that P had agreed to advance the Sums and had concluded an oral agreement. He was told that the loan would be for a term of 12 months but he was unclear about the other terms of the oral agreement;

(4)  He was instructed by D2 to deposit the 2 cheques issued by P in favour of Royal Asia, and around 1 month later, D2 handed to him the Royal Asia Cheque and the Zhuhai Company Cheques;

(5)  At the instruction of D2, he handed over the Royal Asia Cheque and the Zhuhai Company Cheques to P;

(6)  D2 also handed to him the Gathering Receipts which he handed over to P at the request of D2;

(7)  At the request of P, at the end of 2014, he orally demanded D2 for repayment under the Alleged Loan Agreement;

(8)  Whilst he agreed that he had visited the Mining Project, his recollection was that his visits took place after the Alleged Loan Agreement and not in May or June 2016 as suggested by D2 and Mr Wang;

(9)  He denied that he ever represented P in reaching any agreement to invest in the Mining Project;

(10)  He accepted that he and D2 did mention the Mining Project to P but that was after the Sums had been advanced by P;

(11)  He further accepted that P, D2 and he did visit the Mining Project in November 2012 but P was of the view that the Mining Project was situated in an unfavourable location and decided against investing in it;

(12)  He denied that the Sums represented P’s investment in the Mining Project.

3.3  D1’s evidence may be summarized as follows:

(1)  He had never heard of the Alleged Loan Agreement or the Mining Project until he was served with the writ in the present action;

(2)  He had never appointed or authorized D2 to act as his agent to deal with P;

(3)  He had only met Mr Yip before the commencement of these proceedings;

(4)  On 4 February 2022, he agreed with D2 to hold Royal Asia’s shareholdings on trust for D2. As he was merely a trustee, he did not participate in the management and operation of Royal Asia and was not a signatory of Royal Asia’s bank accounts;

(5)  On 21 August 2013, upon D2’s instructions, he transferred the Royal Asia shareholding held by him to Joint Expert which he acquired as a bare trustee for D2;

(6)  At the instruction of D2, he executed various documents to enable the sale of the Joint Expert Group to Sunway;

(7)  On 2 January 2015, at the request of D2, he executed the Confirmation of Trust;

(8)  In cross-examination, he expressly denied that he was aware of (a) the deposit of HK$26,000,000 into Royal Asia’s bank account or (b) the issuance of the Royal Asia Cheque.

3.4  The evidence of D2 may be summarized as follows:

(1)  He was at all material times a shareholder and the legal representative of Zhuhai Company;

(2)  Whilst his witness statement stated that Zhuhai Company was an investor in Longwang, he said in his oral evidence that the foregoing was an error;

(3)  After Mr Yip introduced P to him, he mentioned the Mining Project to P. He had provided 2 documents relating to the Mining Project to Mr Yip, namely “資源開發利用與保護方案” (“Proposal”) and “花崗岩石料資源儲量說明書” (“Manual”);

(4)  In May to June 2012, Mr Yip, representing P, made 2 visits to the site of the Mining Project and carried out negotiations with Mr Wang, at which P had agreed to make an investment of HK$200 million in the Mining Project, and P had agreed to pay at first instance HK$50 million for 50% shareholding in Longwang;

(5)  At that time, D2 was the beneficial owner of Royal Asia and the legal representative of Zhuhai Company. Whilst P was of the view that the shares in Longwang should not be immediately transferred to his name, P wanted some security for his investments. As a result, D2 agreed to P’s request to provide the Royal Asia Cheque and the Zhuhai Company Cheques as security for the eventual transfer to Longwang’s shareholding to P;

(6)  As a result of his discussions with Mr Yip, D2 would assist in the transfer to the Sums to Longwang and, upon receipt of the Sums by Royal Asia and Zhuhai Company, there were onward transferred to Longwang;

(7)  On 15 November 2012, he together with Mr Yip and P visited the site of the Mining Project, during which meetings were held with government officials. P was confident about the Mining Project and indicated that he would make a total investment of HK$200 million, the remaining HK$150 million investment would be made within 6 months;

(8)  Upon P’s confirmation of his investment during his visit in November 2012, Longwang proceeded with its preparatory and design works but the project became abortive as the further investment indicated by P never materialized;

(9)  In early 2015, the Mining Project was requested by the PRC government to be halted due to environmental considerations;

(10)  After P became aware that the Mining Project was aborted, he became unhappy and asked D2 to return the Sums;

(11)  In cross-examination, D2 agreed that (a) he did not adduce any documents that the Sums were transferred to Longwang, (b) no document was adduced to show any due diligence carried out by P or Mr Yip in respect of Longwang and (c) there were no transaction documents adduced to evidence P’s agreement to invest in Longwang.

3.5  Mr Wang’s evidence may be summarized as follows:

(1)  He is the legal representative, managing director and a shareholder of Longwang;

(2)  In May to June 2012, Mr Yip, representing P, and D2 visited the site of the Mining Project on 2 occasions at which it was agreed that P would at first instance pay HK$50,000,000 for 50% shareholding in Longwang;

(3)  P was of the view that Longwang’s shareholding should not be transferred immediately and directed D2 to issue the Royal Asia Cheque and the Zhuhai Company Cheques as security for the eventual transfer to Longwang’s shares to P;

(4)  He confirmed that Longwang had received the Sums;

(5)  On 15 November 2012, P together with Mr Yip and D2 visited the site of the Mining Project and meetings were carried out with government officials. P indicated that he would invest a total sum of HK$200 million into the Mining Project and the government officials promised that there would be a consolidation of the players in the industry, with Longwang being the spearhead enterprise (龍頭企業);

(6)  P instructed him to do all things necessary and promised that the additional investment of HK$150,000,000 would be made available within 6 months;

(7)  However, the additional investment never materialized and the Mining Project became abortive;

(8)  In early 2015, the Mainland Government requested a halt to the Mining Project due to environmental considerations;

(9)  The Mainland Government eventually issued the August 2015 Directive;

(10)  In cross-examination, he explained that Longwang was still in existence;

(11)  He was the majority shareholder and Longwang had 3 other shareholders and Longwang’s shares could still be transferred to P;

(12)  The transfer of Longwang’s shares would be done by the existing shareholders. As at mid 2012, the capital invested in Longwang was around RMB 80 million and that was the basis of the valuation (since the Sums were equivalent to around RMB 40 million);

(13)  If and when the additional investment of HK$150 million materialized, whether the shareholding of P would increase would depend on whether the existing shareholders would make further investments into Longwang;

(14)  He disagreed that P had indicated that P was not interested in the Mining Project during his visit in November 2012.

4.  Analysis

4.1  Two factual issues require the court’s determination. The first, and the primary, issue is whether the Sums (1) were a loan advanced by P pursuant to the Alleged Loan Agreement as contended by P or (2) represented P’s investment in the Mining Project as contended by D2. The second factual issue is whether the Alleged Loan Agreement, even if found to exist, was binding on D1.

4.2  The resolution of the first issue largely depends on witness credibility. It is trite that the credibility of a witness should be assessed by reference to contemporaneous documentation where it exists, as well as inherent probabilities having regarding to all the facts that are known. It is also important to bear in mind the internal consistency of the evidence of a witness, which is often tested by a comparison between the oral testimony of the witness on the one hand and his witness statement and pleadings on the other: Hui Cheung Fai v Daiwa Development Ltd, HCA 1734/2009, 8 April 2014 §§77-82.

4.3  The factual cases advanced respectively by P and D2 each suffers from evidential deficiencies and difficulties on inherent probabilities. The foregoing is acknowledged by Mr Leung in closing, as he was driven to submit that P’s factual case is relatively less incredible than that advanced by D2 but maintained that both versions were not inherently improbable. In this regard, Mr Leung says that the following observations at Ide v ATB Sales Ltd [2008] PIQR P13 §6 are instructive:

“[6] As a matter of common sense it will usually be safe for a judge to conclude, where there are two competing theories before him neither of which is improbable, that having rejected one it is logical to accept the other as being the cause on the balance of probabilities. It was accepted in the course of argument on behalf of the appellant that, as a matter of principle, if there were only three possible causes of an event, then it was permissible for a judge to approach the matter by analysing each of those causes. If he ranked those causes in terms of probability and concluded that one was more probable than the others, then, provided those were the only three possible causes, he was entitled to conclude that the one he considered most probable, was the probable cause of the event provided it was not improbable.”

4.4  However, I must bear in mind the following observations set out at Ide §3:

“… First, a trial judge was not compelled to choose between two theories, where the evidence was unsatisfactory; he could decide the case on the basis that the claimant had not proved his case. Secondly it was not possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, must be the cause, unless all the relevant facts were known; that state of affairs did not exist, as the ship had sunk in deep water. Thirdly, the concept of proof on a balance of probabilities had to be applied with common sense. It required a judge, before he found a particular event occurred, to be satisfied on the evidence that it was more likely to have occurred than not. If the judge concluded that the occurrence of an event was extremely improbable, a finding by him that it nevertheless was more likely to have occurred than not did not accord with common sense. He concluded:

‘In my opinion Bingham J. adopted an erroneous approach to this case by regarding himself as compelled to choose between two theories, both of which he regarded as extremely improbable, or one of which he regarded as extremely improbable and the other of which he regarded as virtually impossible. He should have borne in mind, and considered carefully in his judgment, the third alternative which was open to him, namely, that the evidence left him in doubt as to the cause of the aperture in the ship’s hull, and that, in these circumstances, the shipowners had failed to discharge the burden of proof which was on them.’”

4.5  For the reasons set out below, I generally prefer the evidence adduced by Ds over that adduced by P in case they conflict with each other.

(i)  True nature of the Sums

4.6  I do not regard the case theory advanced by P to be credible for the following reasons:

(1)  On any view, P had only met D2 shortly before the Sums were advanced. There is no mention in the evidence that P, whether by himself or through Mr Yip, had done anything to ascertain the creditworthiness of D2 before advancing the Sums;

(2)  P only suggested, for the first time in his oral evidence, that he was told that the Sums were required for D2’s investment in real estate. No particulars were given on the location(s) or viability of the purported real estate project(s);

(3)  On P’s case, according to the Alleged Loan Agreement, the Sums were repayable within 12 months, namely by August 2013. Yet, he purportedly only instructed Mr Yip to demand repayment in late 2014. In his oral evidence, P explained that he refrained from chasing for repayment because he was preoccupied with his duties as a legislative councillor. However, as a matter of public record, P’s term as a legislative councillor expired in September 2012, namely shortly after the conclusion of the Alleged Loan Agreement. Indeed, upon my direction, P’s solicitors have confirmed after trial that P’s term as a legislative councillor ended on 30 September 2012;

(4)  Even assuming that he was busy with his duties as a legislative councillor, I do not regard the foregoing to be a good reason for not chasing for repayment of a very substantial sum until late 2014, more than 1 year after the due date for repayment;

(5)  Importantly, even after Mr Yip had chased for repayment in late 2014 to no avail, P only presented the Royal Asia Cheque in September 2015, which was after the issuance of the August 2015 Directive upon which the Mining Project definitively became abortive.

4.7  I have not lost sight of the following criticisms made by Mr Leung in respect of the evidence adduced by D2:

(1)  There was no commercial reason to involve Royal Asia and Zhuhai Company to transfer the Sums when P had the ability to directly transfer funds in the Mainland (as evidenced by the RMB20,000,000 remitted to Zhuhai Company’s bank account);

(2)  There was no incentive for D2 to provide security for the transfer of Longwang shares by way of the Royal Asia Cheque and the Zhuhai Company Cheques, and relatedly, a more direct way for P to obtain security was to look to the vendor of the Longwang shares;

(3)  D2’s viva voce evidence that Zhuhai Company was not an investor in Longwang contradicted the case set out in his witness statement;

(4)  How P’s shareholding would be affected by the further injection of HK$150 million was entirely unclear;

(5)  There was no documentary support for the purported investment in the Mining Project;

(6)  There was no documentary evidence to support that the Sums were in fact transferred to Longwang.

4.8  Between the two case theories, in my judgment, I prefer the factual case advanced by D2. The contemporaneous newspaper article contradicts P’s case that he was not interested in the Mining Project but shows that, during his visit to the site of the Mining Project on 15 November 2012, his reported position was that he was intent on a full cooperation with Longwang and planned to make substantial investment pending confirmation of the mining area by the Mainland Government.

4.9  In particular, I place significant weight on the indisputable evidence that P only resorted to the Royal Asia Cheque following the issuance of the August 2015 Directive. The explanation proffered by P to explain his inaction following the due date for repayment is in my view incredible. Conversely, the timing of the presentation of the Royal Asia Cheque is entirely consistent with P having realized that the Mining Project became abortive.

4.10  I find as a fact that the Sums were advanced for the purpose of P’s investment in Longwang.

(ii)  Whether D2 was D1’s agent

4.11  The above factual finding is sufficient to dispose of P’s claim against Ds.

4.12  Insofar as necessary, I additionally find against P’s case that D2 was D1’s agent for the purpose of entering into the Alleged Loan Agreement.

4.13  In P’s Answers to D1’s Request for Further and Better Particulars of the Amended Statement of Claim, P’s case on agency is premised on the following:

“Given that an overwhelming majority of the shareholding in Royal Asia International Limited ("Royal Asia") was owned by the 1^st Defendant and that the 2^nd Defendant had instructed the Plaintiff to issue 2 cheques in the total sum of HK$26,000,000 in favour of Royal Asia being part of the Loan, the Plaintiff asserts that the 2 Defendants were in the same camp and that the 2^nd Defendant was acting for and on behalf of the 1^st Defendant.”

4.14  The entirety of P’s evidence consists of a bare assertion by P that D2 was acting on behalf of D1. As accepted by Mr Yip, throughout the entire course of dealing between the parties prior to the Alleged Loan Agreement, there was no mention of D1 by anyone.

4.15  In closing, the case pursued by P is premised only on implied actual authority. As is established, (1) the authority of an agent may be actual (express or implied) where it results from a manifestation of assent that the agent should represent or act for the principal expressly or implied made by the principal to the agent and (2) the onus of proving authority lies on the party asserting it against the principal, whether the third party or the agent: Bowstead & Reynolds on Agency. 23^rd Ed at §§3-001 and 3-007.

4.16  Even if there is evidence that D2 claimed to be D1’s agent (and there is none), Mr Leung has very fairly accepted the proposition that there is no self-authorizing agent at law.

4.17  In my view, P has failed to surmount the onus of proving that D2 was acting as D1’s agent. As a matter of pleading, the matters set out at §4.12 above do not contain any averment that D1 had made any express or implied representation to D2 giving the former’s assent to D2 to represent him. As a matter of evidence, I find that at all material times, D1 was merely a trustee of D2 to hold the latter’s interest in the Join Expert Group which included Royal Asia. As such, the usual forms of implied authority set out at Bowstead §3-003, namely (1) incidental authority (implied authority to do whatever is necessarily or normally incidental to the activity expressly authorized), (2) usual authority (authority to do whatever an agent of the type concerned would usually have authority to do), (3) customary authority (implied authority to act in accordance with such applicable business customers as are reasonable) and (4) course of dealing between the parties would not, on the balance of probabilities, arise in the present case.

4.18  In my judgment, the attempt to recover from D1, is an unwarranted attempt on P’s part to cast a net as wide as possible to obtain recovery for investment gone bad.

5.  Conclusion

5.1  For the above reasons, I dismiss the action and make a costs order nisi that P is to pay to Ds the costs of the action (including any costs reserved).

5.2  Should D2 require interpretation of this judgment into Chinese, he may approach my clerk to make prior appointment with a court interpreter for the same.