CHEN K.F. KENETH v. CHOW WAI LAP, WILLIAM

HCA 1061/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2006

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D E C I S I O N

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1. On 9 February 2007, Master Roy Yu entered summary judgment against the Defendant for the sum of HK$29,500,000 with interest and costs. This is the Defendant’s appeal against Master Roy Yu’s decision.

The Plaintiff’s Case

2. The Plaintiff’s claim is a contractual one and can be summarized as follows.

3. C. William Investment Co. Ltd. (“CW Investment”) held 10 out of the 100 (i.e. 10%) shares in Global Team Investment Ltd. (“Global Team”). Global Team, a company incorporated in Hong Kong, was in turn a party to the joint venture with Hubei Province Electricity Industrial Bureau. This joint venture was involved in the construction of a power plant in Hubei, the People’s Republic of China.

4. By a written agreement dated 9 December 1995 (“Shares Agreement”), the Defendant and his brother, Mr. H.L. Chan, agreed to sell to the Plaintiff 20% of the 10% interest held by CW Investment in Global Team at the consideration of HK$30 million.

5. The Plaintiff paid the sum of HK$30 million on around 29 December 1995. However, no transfer whatsoever was made in favour of the Plaintiff. The Plaintiff and the Defendant eventually reached an agreement on around 22 May 2000 (“Settlement Agreement”) whereby the Defendant agreed to repay the sum of HK$30 million to the Plaintiff by instalments. This Settlement Agreement, according to the Plaintiff, was evidenced by a handwritten note in Chinese dated 22 May 2000 and signed by the Defendant (“Note”). Notwithstanding the Settlement Agreement, the Defendant only paid the sum of HK$500,000. The Plaintiff thus commenced this Action and claims for the balance of HK$29.5 million.

The Defendant’s case

6. The Defendant did not dispute the making of the Shares Agreement or the payment of the sum of HK$30 million by the Plaintiff. The Defendant’s case can be stated as follows.

7. According to the Defendant, the shareholders and directors of Global Team did not know the Plaintiff and thus would not accept the Plaintiff’s direct participation in Global Team. The Defendant suggested, and the Plaintiff accepted, that the only way the Plaintiff could invest in the power plant project was through CW Investment. Thus, notwithstanding the Shares Agreement, no formal transfer or assignment of shares in Global Team by CW Investment to the Plaintiff was ever intended by the parties.

8. Since there is no obligation to transfer any shares in Global Team, there was no breach of the Shares Agreement by the Defendant or Mr. H.L. Chan. Further, according to the Defendant, the power plant project in Hubei was a total failure by 1996 and all investments were lost. Although the Plaintiff was unhappy about the loss of his investment, he did not complain against anyone.

9. The Defendant did not dispute that he made and signed the Note, though he denied having agreed to repay the sum of HK$30 million to the Plaintiff. His explanation is as follows. In May 2000, the Plaintiff confided to Mr. H.L. Chan that the HK$30 million came jointly from him and his Taiwanese partners. As the Taiwanese partners pressed him to account for the loss, the Plaintiff requested the Defendant, through Mr. H.L. Chan, to write the Note so that he could show it to his Taiwanese partners to buy time. The Defendant agreed to help. He made the Note, thinking that it would not be binding, and handed it to Mr. H.L. Chan who delivered it to the Plaintiff.

10. As regards the sum of HK$500,000, the Defendant has put forward two versions. First, in his Defence, he denied any agreement in 2000 but averred that there was a settlement agreement in 2002 and the sum of HK$500,000 was paid in pursuance thereto in full and final settlement of any liability owed to the Plaintiff. Second, in his Affirmation, the Defendant suggested that this sum of HK$500,000 was a loan to the Plaintiff. These two versions are inconsistent and I shall deal with them further in the later part of this decision.

11. Apart from referring to other factual disputes which are not really material to the determination of this appeal, the Defendant submitted that there are the following triable issues:

(1)	whether any formal transfer of shares was intended by the parties under the Shares Agreement;
(2)	whether there was the Settlement Agreement whereby the Defendant agreed to repay the sum of HK$30 million to the Plaintiff;
(3)	whether the Settlement Agreement, if made, was supported by consideration.

12. In addition, the Defendant contended that there are suspicions and doubts in the Plaintiff’s case and thus it would not be appropriate to grant summary judgment against the Defendant.

The Shares Agreement

13. It is important to note that the Plaintiff’s claim in this Action is based on the Settlement Agreement and not the Shares Agreement. The question of whether there was a breach of the Shares Agreement is only relevant to the background which led to making of the Settlement Agreement, and the question of whether the Settlement Agreement was supported by consideration (which is a separate issue raised by the Defendant and which will be dealt with later).

14. Whether or not there was a breach of the Shares Agreement depends on the contractual obligation of the Defendant and Mr. H.L. Chan. This in turn depends on the proper interpretation of the Shares Agreement. In ascertaining the intention of the parties, the starting point is the agreement itself. It is trite that evidence of the subjective intention is not admissible, although the agreement should be construed against the relevant factual matrix. If the construction of an agreement is material to the determination of the plaintiff’s claim and if the factual matrix relevant to such construction is in dispute, summary judgment would not be appropriate. However, this is not such a case.

15. Clause (1) of the Shares Agreement read as follows:

“	甲方 [the Defendant and Mr. H.L. Chan] 同意將 “偉樂投資有限公司” [CW Investment] 名下所佔“寶添投資有限公司” [Global Team] 之10% 股益中的20%及其所產生之一切權益以港幣三仟萬圓的價格轉讓給乙方 [the Plaintiff] 。”

16. The Defendant contended that this clause should be interpreted to mean that the Defendant and Mr. H.L. Chan only agreed to transfer 20% of the beneficial interests of CW Investment’s shareholding in Global Team. On this basis, it was contended that no formal transfer was contemplated by the parties. I do not agree such contentions are arguable.

17. In the first place, the wordings of clause (1) of the Shares Agreement are very general. The Chinese characters “ 股益 ” are a short form of  “ 股份權益 ”, which simply meant interest in shares without making any distinctions between legal and equitable interest. Further, the reference to “ 所產生之一切權益 ” (all the rights and interests arising from the 20% of CW Investment’s 10% shareholding in Global Team) in clause (1) of the Shares Agreement is inconsistent with the interpretation contended by the Defendant. In short, the words used in clause (1) did not suggest that the parties only intended to deal with beneficial interest and not both legal and beneficial interests.

18. The Defendant suggested that the shareholders and directors of Global Team did not know the Plaintiff and thus would not accept his direct participation in Global Team. The Plaintiff denied he was ever told of this. Admittedly this is a factual dispute. However, I do not think this factual dispute assists the Defendant. At the most, this factual disputes may be relevant to consider whether clause (1) obliged the Defendant and Mr. H.L. Chan to transfer 2 shares in Global Team to the Plaintiff or 20% of the issued share capital in CW Investment to the Plaintiff. Had the Plaintiff based his claim on the Shares Agreement, this issue might have significance. However, as stated above, the Plaintiff’s claim is based on the Settlement Agreement and not the Shares Agreement.

19. On the Defendant’s own case, some form of transfer was intended. In paragraph 4 of his Defence, it is stated that “the Defendant had agreed to procure the transfer to the Plaintiff by C. Williams Investment Company Limited of 20% of the beneficial interests of its 10% shares holdings of and in Global Team”. The same point was made by the Defendant in paragraph 7 of his Affirmation filed herein on 4 October 2006.

20. It is not disputed by the Defendant that no transfer whatsoever had been made in favour of the Plaintiff. Even if clause (1) of the Shares Agreement only obliged the Defendant and Mr. H.L. Chan to transfer 20% of the interests held by CW Investment in Global Team (as is accepted in paragraph 4 of the Defence and also paragraph 7 of the Defendant’s Affirmation), there is no suggestion, let alone evidence, that such a transfer was made by the Defendant or Mr. H.L. Chan.

21. The Defendant contended that the parties did not intend to have any formal transfer or assignment. This assertion is totally contrary to the use of the Chinese characters “ 轉讓 ” (which meant transfer) in clause (1) of the Shares Agreement. On the Defendant’s own case, as is reflected in paragraph 4 of his Defence and paragraph 7 of his Affirmation mentioned above, the parties must have intended some form of transfer. Further, it is contrary to common and commercial sense that the parties did not intend to have any transfer when the amount at stake is HK$30 million.

22. In short, the position is this. It is not disputed that the Shares Agreement was made and the Plaintiff had paid HK$30 million. Yet, the Defendant or Mr. H.L. Chan had done nothing in respect of the transfer, whether in respect of beneficial interests or otherwise, of the shares in either Global Team or CW Investment. From any angle, the Defendant and Mr. H.L. Chan were in breach of the Shares Agreement.

23. There is also the contention by the Defendant that by 1996, the power plant project in Hubei was a total failure and all investments made were lost. According to the Defendant, the Plaintiff accepted that all business ventures involve an element of risk and that the failure of the power plant project was beyond the Defendant’s control. Putting aside the fact that this is a bare assertion without any particulars or evidence, I find this allegation inconsistent with the other allegation made by the Defendant that the Plaintiff asked for the Note because he had to account to his Taiwanese business partners. I shall deal with that aspect later in this decision.

The Settlement Agreement

24. The Defendant did not dispute that he signed the Note. He contended that the Note was made at the request of the Plaintiff so that he could show it to his Taiwanese partners for the purpose of buying time to settle the matter with his Taiwanese partners. In this regard, paragraphs 16 and 17 of the Defendant’s Affirmation stated as follows:

“	16.	In about May 2000, Mr. H.L. Chan visited me in my office in Hong Kong. He told me that the purpose of his visit was to ask me for a special favour on behalf of the Plaintiff. He further explained that the Plaintiff confided to him that the HK$30 Million the Plaintiff lost in the Project in fact partly belonged to him and partly belonged to his partners in Taiwan and that his partners demanded that he should personally account for the loss. As the Plaintiff was in financial difficulty then, he asked me to write a note to the Plaintiff saying that I am willing to bear the loss of his investment of HK$30 Million and also set out the dates of repayment by instalments.
	17.	I did not think it was a good idea to write the note because it did not reflect the truth. However, my brother Mr. H.L. Chan urged me to consider the past dealings we had with the Plaintiff which proved that he was reliable and trustworthy person. Furthermore, the Plaintiff repeatedly guaranteed to my brother that the note was for his personal use only to show to his partners in Taiwan in order to buy him some time to settle the matter with them. It was under those circumstances that I decided to write the note which was not intended to have any binding effect on me. The note was signed by me only and dated 22nd March 2000. It was collected by my brother who delivered it to the Plaintiff. ......”

25. The Plaintiff disputed the Defendant’s explanation with regard to the Note. It is the Plaintiff’s case that the Note evidenced the Settlement Agreement. According to the Plaintiff, he enquired about the progress of the matter from time to time during the period from 1997 to 2000. In early 2000, the Plaintiff lost his patience and threatened legal proceedings. As a result, the Defendant wrote the Note and agreed to repay the HK$30 million to him.

26. The Defendant is correct that the disputes between the parties in this aspect are factual disputes and that this Court should not embark upon a mini-trial on affirmations. However, the question remains, as expounded in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 (at p. 158), whether the Defendant’s assertions in respect of the Note are believable. As was pointed out by Bokhary J.A. (as he then was) in Re Safe Rich Industries Ltd. CACV No. 81 of 1994 (3 November 1994) (para. 13), “it must be recognized – because failure to recognize it would create a debt-dodger’s charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute”.

27. In paragraph 27 of his decision, Master Roy Yu stated as follows:

“

The Defendant’s primary defence was that the note was not meant to have any legal effect. It was only for the Plaintiff to show to his partner. What the Defendant is asking the Court to believe is that he gave a false statement with the intention to assist the Plaintiff to default his partner. Having considered his affirmation, it is clear that the Defendant was an experienced businessman. It is unbelievable that he would assist the Plaintiff to default [sic.] [defraud] his partner, and more that he would expose himself to liability of HK$30M. Such assertion is just unbelievable.”

28. Having considered all the evidence and the parties’ submissions, I agree that the Defendant’s assertions concerning the Settlement Agreement and the Note are unbelievable. In particular, I find it unbelievable that the Defendant would have signed the Note if he did not accept that he was liable to repay the sum of HK$30 million to the Plaintiff.

29. On the Defendant’s own case, the parties had business dealings since the early 1990’s. The evidence shows that the Defendant was, by 2000, a sophisticated and seasoned businessman. Surely the Defendant would appreciate and understand the significance and implications of signing the Note. Indeed, the contrary had not been suggested by the Defendant. If he did not accept he was liable to repay the sum of HK$30 million to the Plaintiff, there was no reason for him to sign the Note.

30. The assertion that the Plaintiff asked for the Note so that he could show it to his Taiwanese partners does not render the Defendant’s case any more believable. According to the Defendant, the loss of the investment was beyond his control and the Plaintiff had no complaint against anyone. If that were the case, one would at the most expect the Defendant to offer to assist the Plaintiff by explaining to his Taiwanese partners that the loss was not due to the Plaintiff’s fault. Besides, if the Plaintiff was somehow liable to repay his Taiwanese partners but was unable to do so, one would at the most expect the Defendant to offer a loan or other forms of financial assistance to the Plaintiff. One would not expect, and thus unbelievable, that the Defendant would sign the Note so that the Plaintiff could use it to defraud his Taiwanese partners and at the same time exposing himself to a liability of HK$30 million.

31. Further, if the Plaintiff wanted to buy time to settle the matter with his Taiwanese partners, it is difficult to see why the Plaintiff would require the Note from the Defendant. Either the Plaintiff’s Taiwanese partners were prepared to accept repayment by instalments or they were not. If the Taiwanese partners were not prepared to allow time or accept repayment by instalments, it is difficult to see how the Note from the Defendant would change the position. There is no suggestion, let alone evidence, that the Defendant had any influence over the Taiwanese partners. On the Defendant’s case, he did not know the existence of the Taiwanese until he was asked to write the Note. On the other hand, if the Taiwanese partners were prepared to accept repayment by instalments, the Plaintiff could negotiate the instalment periods and there would not be any need to have the Note from the Defendant.

32. Not only did the Defendant sign the Note agreeing to repay HK$30 million, he issued post-dated cheques in favour of the Plaintiff on two separate occasions.

33. According to the Defendant, the reasons why he issued post-dated cheques in favour of the Plaintiff are as follows. In around March 2001, his brother Mr. H.L. Chan visited him and told him that the Plaintiff requested him to assist by issuing some post-dated cheques so that the Plaintiff could show the cheques to his Taiwanese partners. On the understanding that the cheques would not be presented, the Defendant issued 11 cheques and post-dated them from 31 March 2002 to 31 March 2012. The first two of them were each in the sum of HK$500,000, whilst the remaining 9 cheques were each in the sum of HK$1 million. Then, a few months later, the Plaintiff himself visited the Defendant and told him that his Taiwanese partners regarded the yearly instalments too small in amount. Hence, the Defendant issued another 3 post-dated cheques, each in the sum of HK$3 million, to replace the last 9 post-dated cheques each in the sum of HK$1 million. Likewise, these 3 post-dated cheques were only issued so that the Plaintiff could show them to his Taiwanese partners and that they would not be presented for payment.

34. I find the Defendant’s story about these post-dated cheques equally unbelievable. As a seasoned businessman, the Defendant would certainly appreciate the implications of issuing post-dated cheques. He would certainly appreciate that the issue of post-dated cheques would expose him to a greater risk than signing the Note. Considering the evidence in the present case, the fact that the Defendant issued post-dated cheques in favour of the Plaintiff shows that he accepted responsibility to repay the Plaintiff as acknowledged in the Note.

35. Not only did the Defendant issue post-dated cheques in favour of the Plaintiff, the first one dated 31 March 2002 in the sum of HK$500,000 was presented by the Plaintiff and honoured by the Defendant. As stated above, the Defendant has put forward two inconsistent versions to explain why this sum of HK$500,000 was paid. The inconsistencies between these two versions fortify the conclusion that the Defendant’s assertions are unbelievable.

36. In paragraphs 8 and 9 of his Defence filed on 21 July 2006, the Defendant asserted as follows:

“	8.	In or around the beginning of 2002, after some further negotiation between the Plaintiff and the Defendant, the Plaintiff agreed to accept, in full and final settlement, and in exoneration of any liability which it is alleged that the Defendant owes to the Plaintiff, which is denied, a sum of HK$500,000.00 to be paid by the Defendant to the Plaintiff. Pursuant to such agreement, the Defendant paid to the Plaintiff the sum of HK$500,000.00 on 31st March 2002.
	9.	In the premises, the Defendant avers that there was a full and final settlement of any cause of action which the Plaintiff may have against the Defendant.”

37. On the other hand, in his Affirmation affirmed on 30 September 2006 (i.e. slightly over 2 months after the Defence was filed), the Defendant abandoned his pleaded case that there was a full and final settlement. Instead, paragraph 27 of the Defendant’s Affirmation suggested that the sum of HK$500,000 was a loan advanced to the Plaintiff and stated as follows:

“

After the meeting [at which the Defendant agreed to issue the 3 post-dated cheques each in the sum of HK$3 million] the Plaintiff had not contacted me until about two weeks before the due date for the first cheque, he called me again. This time he told me that he was close to settling every outstanding matters with his partners in Taiwan but he needed some more time to close some of his ongoing business deals. He told me that he had to bank in the first post-dated cheque I gave him to tide him over his cash flow problem. He further said that he cheque amount of HK$500,000.00 would be treated as a loan from me to him and he could repay me as soon as his business deals were completed. Having considered that I had gone this far with the Plaintiff in this matter, I decided to comply with his request and honoured the first post-dated cheque I gave him. I also consulted with my brother on the Plaintiff’s request and he agreed with my decision. I refer to paragraph 8 of the Defence filed on 21st July 2006. Upon further consideration and having the benefit of further legal advice, it is noted that it has mistakenly been stated in the Defence that the said sum of HK$500,000.00 was in full and final settlement of any alleged liability owed to the Plaintiff. But as the matter of fact, I had been advised and verily believe that I should be able to counter claim against the Plaintiff for the said sum of HK$500,000.00 and application for leave to amend the Defence to add in such a counter claim after disposal of this Order 14 Summons.”

38. The version pleaded in the Defence and the version put forward in the Defendant’s Affirmation are totally different. Whether there was a settlement agreement in early 2002 or a loan to the Plaintiff must be clear to the Defendant. If the sum of HK$500,000 was in fact a loan, the Defendant should not have any difficulty in informing his legal advisers when the Defence was being prepared. Apart from asserting that it was a mistake, the Defendant failed to explain why or how such a mistake was made. If this was a genuine mistake, surely the Defendant would be in a position to explain how this mistake was made. Yet, although the absence of an explanation was rightly pointed out by the Master in paragraph 22 of his decision, the Defendant did not seek leave to file any affirmation at this appeal to explain the alleged mistake.

39. Both versions given by the Defendant were factual, and not legal, in nature. Hence, the mistake, if it was in fact a mistake, could not have been due to any misunderstanding of the laws or the legal effects of the payment. In any event, the Defendant was at all material times legally represented and there is no suggestion that he received any wrong legal advice. Nor is there any suggestion that the Defence was not prepared in accordance with the Defendant’s instructions.

40. In the circumstances, I find the Defendant’s assertion that the sum of HK$500,000 was a loan to the Plaintiff also unbelievable. Once the Defendant’s allegation of loan is rejected, the only conclusion that can be drawn from the evidence is that the sum of HK$500,000 was paid by the Defendant in partial discharge of his liability under the Settlement Agreement, as acknowledged in the Note, to repay the sum of HK$30 million to the Plaintiff. The plea in paragraphs 8 and 9 of the Defence (i.e. the sum of HK$500,000 was paid in full and final settlement of the Plaintiff’s claim) is no longer relevant since the Defendant, as stated above, has abandoned that plea when he made his Affirmation.

41. Apart from the Note, there is another letter in Chinese dated 1 April 2006 which was written and signed by the Defendant. This letter referred to the partial repayment of HK$500,000, but somehow suggested that the Defendant would only repay the balance of HK$9.5 million (as opposed to HK$29.5 million) according to his conscience. Like the Note, it is also the Defendant’s case that this letter was written at the Plaintiff’s request. Unlike the Note, the Defendant asserted that the purpose of writing this letter was to enable the Plaintiff to use it to put pressure on Mr. H.L. Chan to settle a dispute the Plaintiff had with Mr. H.L. Chan concerning some property investments in Singapore.

42. I do not think I need to deal with this aspect of the case in any detail. Suffice it to say that the Defendant’s assertions in respect of this letter are even more unbelievable. In short, the Defendant is suggesting that he wrote this letter so that the Plaintiff could use it to defraud his own brother, Mr. H.L. Chan. On the evidence, this assertion cannot possibly be true. On the other hand, this letter contradicts the Defendant’s allegation that the said sum of HK$500,000 paid in March 2002 was a loan and not a part repayment, and thus in turn contradicts the Defendant’s case that he has never agreed to repay the sum of HK$30 million to the Plaintiff.

43. Before moving on to the next triable issue sought to be raised by the Defendant, I should perhaps add this. Prior to the commencement of this Action, the Plaintiff’s solicitors Messrs. Fairbairn Catley Low & Kong sent a letter dated 24 April 2006 to the Defendant. This letter summarized the basis of the Plaintiff’s claim, referred to the Note and demanded the sum of HK$29.5 million. There is no suggestion that the Defendant did not receive this letter. Yet, on the evidence, the Defendant did not reply to this letter. If the various assertions now put forward by the Defendant were true and genuine, one would expect the Defendant to write back, set out his explanations and deny the Plaintiff’s claim. The Defendant’s failure to do so, coupled with the other matters discussed above, show that the matters now raised by the Defendant are not genuine triable issues.

44. In light of the above, I do not think it is arguable that the Defendant did not intend the Settlement Agreement or the Note to be legally binding. Nor can it be arguable that the Defendant had not agreed to repay HK$30 million to the Plaintiff.

Absence of Consideration

45. In addition to the matters discussed above, the Defendant contended that the Settlement Agreement was not supported by consideration. This argument was based on the contention that there was no breach of the Shares Agreement. Given that I have rejected the Defendant’s arguments regarding the Shares Agreement, the contention that the Settlement Agreement was not supported by consideration is doomed to fail. In any event, the compromise of a claim which is doubtful in law or an invalid claim but made in good faith can also be binding. See: Chitty on Contracts, 29^th edn., Vol. I, para. 3-051 to 3-054. Hence, I do not think the consideration point is arguable.

46. In this regard, the Defendant also contended that the various post-dated cheques and the Note were likewise not supported by consideration. I do not think those arguments are relevant. The Plaintiff is not suing on the post-dated cheques. He is suing on the Settlement Agreement and the Note only evidences the existence of the Settlement Agreement. In any event, given my rulings on the Settlement Agreement and the Note, the Defendant’s argument regarding the absence of consideration (whether in respect of the Note or otherwise) is bound to fail.

Suspicious Features of the Plaintiff’s Case

47. The Defendant contended that there are suspicious features in the Plaintiff’s case. Relying on the decision in Billion Silver Development Ltd. v All Wide Investments Ltd. [2000] 2 HKC 262, the Defendant argued that those suspicious features render it inappropriate to grant summary judgment in favour of the Plaintiff.

48. The features relied on are set out in paragraphs 55 to 60 of the Defendant’s Skeleton Submissions. They concerned the non-presentation of the 3 post-dated cheques each in the sum of HK$3 million and the ways in which the Plaintiff dealt with the Defendant’s evidence. In my view, the features relied on by the Defendant (whether taken individually or together) are neither here nor there. The Plaintiff’s claim is not based on the post-dated cheques. Given the second post-dated cheque was dishonoured, the Plaintiff’s decision not to present the remaining 3 cheques can hardly be criticized. As to the ways the Plaintiff dealt with the Defendant’s evidence, it is understandable that a plaintiff in an Order 14 application would like to keep his evidence as brief as possible since it is not the function of the Court to embark upon a mini-trial on affirmations. On the whole, the features relied on by the Defendant do not throw any real doubt on the Plaintiff’s claim. Nor do they give rise to any triable issues or good reasons to refuse summary judgment.

Conclusion

49. In light of the matters discussed above, I dismiss the Defendant’s appeal. I also make an Order nisi that the Defendant do pay to the Plaintiff the costs of and incident to this appeal.