HUEN WAI KEI v. CHOY KWONG WA CHRISTOPHER

HCA 1093/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1093 OF 2006

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J U D G M E N T

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1. This judgment is given in respect of the trial of HCA 1093 of 2006, HCA 1242 of 2006 and HCA 2140 of 2006, which have been consolidated pursuant to the Order of Master de Souza dated 6 September 2007.

2. The parties to these three actions are Huen Wai Kei, Vincent (“Huen”), China Gain Corporation Ltd (“China Gain”) on the one side, and Christopher Choy Kwong Wa (“Choy”) and Raking Ltd (“Raking”) on the other side.

BACKGROUND

3. Pacific World Asset Management Ltd (“PWAM”) is a company incorporated in Hong Kong in February 1993.  It was registered with the Securities and Futures Commission (“SFC”) and licensed to carry on regulated activities under Part V of the Securities and Futures Ordinance Cap 571(“SFO”) including advising on securities and assets management (being Types 4 and 9 regulated activities).

4. PWAM was set up by Huen, Choy and Poh Chee Boon Clinton (“Poh”).

5. At the time of the Shares Agreement referred to later in this judgment, the respective shareholdings of the three shareholders in PWAM were as follows:

(a)  Huen  1,000,000 shares (30.3%)

(b)  Choy  1,650,000 shares (50%)

(c)  Poh   650,000 shares (19.7%)

6. At all material times, Huen, Choy and Poh were the only directors of PWAM.  When PWAM was incorporated, Huen was working full time in Macau and Poh was working in Malaysia.  The day to day management of PWAM was therefore left to Choy as he was experienced in fund management business and was the Chief Executive Officer (CEO), Chief Investment Officer (CIO) and a Responsible Officer (“RO”) of PWAM right from the start.

7. Poh did not work at PWAM until around March 2002 when he came to Hong Kong.

8. The SFO required PWAM to have at least two ROs.  At all material times, Choy and Poh were the only ROs of PWAM until Choy’s resignation on 18 October 2005.  Huen, on the other hand, continued to take an inactive role and did not participate in the daily operations of PWAM.

9. In early 1988 PWAM succeeded in securing its appointment as the manager of an investment fund known as Global Absolute Profit Series (“GAPS”) in which the Hongkong and Shanghai Banking Corp Ltd (“HSBC”) acted as the trustees.  GAPS was an umbrella unit trust comprising various sub-funds.  Choy was the one responsible for managing and handling all matters relating to GAPS.

10. Raking was at all material times the registered owner of the properties known as Flat A, 53^rd floor, including the flat roof thereof, and 55^th floor, including the flat roof thereof, being a duplex of South Tower 5 of Residence Bel-Air, Island South, together with car parks nos 273 and 274 on car park level 3 (collectively “the Properties”).

11. The only directors and registered shareholders of Raking are Choy and his wife (“Mrs Choy”) who is the younger sister of Poh.  Choy is the brother-in-law of Poh.

12. China Gain is the corporate vehicle of Huen used to acquire the Properties under the circumstances referred to below in this judgment.

THE CLAIMS BY HUEN AND CHINA GAIN (PLAINTIFFS)

13. In early October 2005, Huen was tipped off by Poh that Choy had formed a company called Pacific World Fund Manager Ltd (“PWFM”).  The business of PWFM was similar to that of PWAM, and that Choy had transferred the management rights of GAPS to PWFM.  Huen was also informed by Poh that Choy also owned another company called Pacific World Financial Services Ltd (“PWFS”) and was siphoning money to the bank account of PWFS or Choy’s personal account.

14. As a result of what he was told by Poh, Huen then took the following steps:

(a)   Enquiries made by Huen indicated that Huen’s interests in PWAM was seriously jeopardized by the wrongful acts of Choy;

(b)   Attempts were made to contact Choy to find out the situation;

(c)   Huen attended PWAM’s office on 14 October 2005 to look at the documents (especially after learning that the SFC had issued notice to PWAM requesting production of documents as a result of irregular conduct on the part of Choy);

(d)   A Board meeting of PWAM was held on 15 October 2005 (accepted by Huen and Annie Leung during  their respective cross examination to be 17 and not 15 October 2005), during which Huen confronted Choy and demanded explanations from Choy;

(e)   A letter was sent by Huen’s solicitors, Shea & Co, to ask for the accounts of PWAM and Huen’s solicitors also sought professional valuation of Huen’s shares in PWAM.

15. Choy responded by resigning as a RO, director and all employment position in PWAM with immediate effect on the late night of 18 October 2005.  At around the same time, the majority of staff in PWAM also tendered their resignation by emails.  It is Huen’s case that those staff members acted in concert with Choy or at his instigation.

16. As a result of Choy’s resignation, it became necessary for PWAM to inform the SFC of same.  That was done by filing a Form 5 with the SFC between 19 and 21 October 2005.

17. At the same time Poh lodged a complaint against Choy with the police on 19 October while Huen (on the advice of the SFC) lodged a complaint with the ICAC against Choy on the same day.

18. As a result the regulated activities of PWAM was suspended by the SFC.

19. At a Board meeting of PWAM held on 22 October 2005, Huen confronted Choy again.  It is the plaintiffs’ case that Choy admitted his wrongdoings during this Board meeting and promised to compensate Huen’s losses.  After some discussion, Huen agreed to sell his shares in PWAM to Choy for HK$40 million, and that Huen would withdraw his ICAC complaint against Choy and also not bring any further action against Choy.

20. Eventually, Huen and Choy signed an Agreement for sale (by Huen) and purchase (by Choy) of Huen’s shares in PWAM (“the Shares Agreement”) on 26 October 2005.

21. By the Shares Agreement, Choy agreed to purchase Huen’s shares in PWAM for HK$40 million.  The Shares Agreement contained, amongst others, the following provisions for payment of the shares:

(a)   Upon signing the Shares Agreement, Choy should procure PWFM to execute a transfer of 105,779.81 units of Global Arbitrage Strategy Fund Plus A (USD) to Huen, which amounted to HK$10 million as initial payment;

(b)   The balance of the consideration in the sum of HK$30 million should be paid by 3 installments: (a) HK$10 million on or before 25 January 2006; (b) a further HK$10 million on or before 25 April 2006; and (c) the balance of HK$10 million on or before 25 July 2006;

(c)   3 personal cheques would be issued by Choy in favour of Huen for the purpose of facilitating the said installment payments.

22. Pursuant to the Shares Agreement, Choy did procure the transfer of the said units of Global Arbitrage Strategy Fund Plus A (USD), and did issue 3 post-dated cheques, post dated to 25 January 2006, 25 April 2006 and 25 July 2006 respectively, in favour of Huen (respectively referred to hereinafter as the “1^st Cheque”, “2^nd Cheque” and “3^rd Cheque”).

23. It is Huen’s case that after the Shares Agreement was entered into, the management of PWAM was handed back to Choy, Poh, and Wong Kong Yau Peter (“Peter Wong”) who was a solicitor and also the Director of Compliance of PWAM at the time.

24. On 3 November 2005, the SFC informed PWAM that it could not reinstate Choy as PWAM’s RO.

25. On 4 November 2005, Huen and Choy discussed the question of security and/or guarantee for Choy’s liability to pay Huen under the Shares Agreement.

26. As a result, Huen and Choy on their own behalfs and on behalf of China Gain and Raking respectively agreed as follows (“the Security & Set-Off Agreement”):

(a)   Choy would procure Raking to put up the Properties as security and/or guarantee for Choy’s liability under the Shares Agreement;

(b)   Should Choy default in payment under the Shares Agreement, Raking should assign the Properties to China Gain the consideration of which should  be set-off against the amount in default;

Pursuant thereto:

(1)   Huen and Choy signed a Memorandum of Agreement for Sale and Purchase (“the Memorandum”) dated 4 November 2005, whereby Raking agreed to assign the Properties to China Gain at the consideration of HK$38.4 million;

(2)   Huen and Choy further signed an agreement supplemental to the Shares Agreement which supplemental agreement was dated 4 November 2005 (“the Supplemental Agreement”).  The Supplemental Agreement stated, among other matters, that the parties procured the signing of the Memorandum as a guarantee for Choy’s liability under the Shares Agreement;

(3)   China Gain and Raking signed an Agreement for Sale and Purchase dated 8 November 2005 in respect of the Properties (“the S & P Agreement”).

27. Choy failed to honour the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque upon their presentation by Huen and the Properties have not been transferred to China Gain.

28. The plaintiffs therefore bring this claim against the defendants on the basis of the Shares Agreement, the Memorandum, the Supplemental Agreement and the S & P Agreement.  The plaintiffs also claim in respect of the dishonor of the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque.

THE DEFENCE OF CHOY AND RAKING

29. Choy disputes the claim of the plaintiffs.

30. However, Choy does not dispute the entering into of the Shares Agreement and Choy neither disputes the issue of the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque nor their dishonor.

31. Choy’s pleaded defence can be summarized as follows.

32. Shortly before and after the Board meeting held on 22 October 2005,  Huen together with Poh and a solicitor of Shea & Co acting for Huen, one Ms Annie Leung (“Leung”) represented to Choy as follows (“the Representations”):-

(a)   The Form 5 Notice could be validly withdrawn within 7 days of the date of Choy’s resignation as  RO of PWM; and

(b)   There would be no problem for Choy resuming his former position as a RO of PWAM so as to enable PWAM to carry on its business as before.

33. Relying on the Representations, Choy entered into the Shares Agreement.

34. Therefore the Shares Agreement was entered into on the fundamental assumption shared by Huen and Choy that Choy “would be able to resume” his position as a director and RO of PWAM so that it could carry on its business as before (“the Fundamental Assumption”).

35. Further, it was an implied condition (“the Implied Condition”) of the Shares Agreement that Choy would be able to resume his position as  RO as to enable PWAM to carry on its business as before.

36. It is also the defence case that there was a collateral agreement (“the Collateral Agreement”) between Choy and Huen whereby in consideration of Choy entering into the Shares Agreement, Huen would warrant the accuracy of the Representations.  Hence if the Representations were untrue, Huen would be in breach of the Collateral Agreement and would not be entitled to enforce the Shares Agreement against Choy.

37. Following the SFC’s refusal to reinstate Choy as RO of PWAM on 3 November 2005, Choy and Huen agreed not to proceed with the Shares Agreement.

38. Since SFC refused to reinstate Choy as RO of PWAM on 3 November 2005, it is the defence case that:

(a)   The Representations were false;

(b)   Huen’s consideration for the Collateral Agreement has not materialized;

(c)   The Fundamental Assumption was mistaken;

(d)   The Implied Condition was not fulfilled; and

(e)   The Shares Agreement was frustrated by SFC’s refusal to reinstate Choy as RO of PWAM and/or the failure of PWAM to continue its normal business.

39. On this basis, it is the defence case that:-

(a)   Choy was entitled to and did rescind the Shares Agreement;

(b)   Choy was released from his obligations under the Shares Agreement on 3 November 2005;

(c)   By virtue of the Collateral Agreement, Huen is not entitled to sue on the Shares Agreement; and

(d)   Huen is estopped by convention from denying that the Shares Agreement was subject to the Fundamental Assumption and it would be inequitable for Huen to go back on the Fundamental Assumption which was mistakenly shared by both Huen and Choy.

40. In his closing submission, Leading Counsel for Choy informed the court that he formally abandoned the defence of Misrepresentation, Implied Condition and Fundamental Assumption in so far as that gives rise to an estoppel by convention.  However, he would continue to rely on the other defences pleaded including frustration of the Shares Agreement, and for that would rely on the Fundamental Assumption as the evidential basis for the defence of frustration.

41. It is also the defence case that during a telephone conversation in around mid-December 2005 between Huen and Choy, the two of them orally confirmed that they had, as agreed on around 3 November 2005, released each other from their mutual obligations under the Shares Agreement.

42. As regards the assignment of the Properties, the defence case of Choy and Raking are as follows.

43. On the morning of 4 November 2005, Choy, Poh and Peter Wong discussed with Oria Capital Management Ltd (“Oria”) as to whether Oria would be interested in taking over PWFM’s interest under a delegation agreement dated 1 April 2004.  On the same afternoon, Huen and others confronted Choy, Poh and Peter Wong over the approach made by them to Oria.

44. Therefore with a view to preventing Huen from interfering with the proposed sale of PWFM’s interest to Oria, Choy renegotiated with Huen and agreed that Huen would be paid the amount of HK$40 million (being the same amount under the Shares Agreement, although the Shares Agreement had been cancelled) if the sale to Oria were successful.  The parties then executed a preliminary agreement for the sale by Raking of the Properties to Huen for HK$38.4 million by way of guarantee of the performance of this payment obligation.

45. The parties further agreed that –

(a)   Huen would cease to participate any further in PWAM or the sale of PWFM’s interest;

(b)   The S & P Agreement would be signed on 7 November 2005 (which was later extended to 8 November 2005), upon which Huen would resign as a director of PWAM and control of PWAM would revert to Choy;

(c)   Huen would execute the bought and sold notes in relation to Huen’s shares in PWAM in escrow upon the execution of the S & P Agreement and the same should be kept by Shea & Co as stakeholders pending the completion of the sale of Huen’s shares.

46. Thereafter the parties signed the Memorandum.

47. However, although Choy did sign the Supplemental Agreement on 4 November 2005, no Supplemental Agreement signed by Huen was returned to Choy.  Further, Huen failed to implement the actions set out in the Supplemental Agreement by resigning as a director of PWAM.  Choy therefore denies that the parties had entered into any agreement as contained in or evidenced by the Supplemental Agreement.

48. Huen also proposed and Choy agreed that the sale and purchase of the Properties would proceed as a normal sale and purchase transaction at a meeting held at around 12.30 pm on 8 November 2005 at Shea & Co’s office.  Therefore the Supplemental Agreement, if any, was in any event superseded by this agreement.

49. Although the S & P Agreement was signed, China Gain or Huen failed to pay the deposit in the sum of $3,840,000.

50. Choy and Raking were ready able and willing to perform their obligations in respect of the sale of the Properties but Huen and China Gain failed to complete the same.  Accordingly, China Gain had repudiated the S & P Agreement and such repudiation had been accepted by Raking.

51. In addition, it is also the defence case that Huen’s claim on the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque are wholly inconsistent with his claim in HCA 1242 of 2006 in that Recital C to the Supplemental Agreement stated that the same was made in full and final settlement of their disputes.

52. Apart from the defences put forward by Choy, Choy also seeks to counterclaim damages from the failure by Huen to reinstate him as RO of PWAM for :-

(a)   Loss of salary of $500,000 per month;

(b)   Loss of profit arising from the failure to complete the S & P Agreement;

(c)   Return of HK$10 million being money had and received by Huen as being paid on consideration which has wholly failed.

53. Once again, Leading Counsel for Choy informed the court at the trial that Choy would abandon the counterclaim for loss of salary and loss of profit but would only rely on the return of the HK$10 million as money had and received by Huen.

THE ISSUES IN DISPUTE

54. Leading Counsel appearing for both sides are agreed that the main dispute in this case can broadly be divided into two broad questions, namely:

(a)   Whether the Shares Agreement is enforceable by Huen; and

(b)   Whether there is any Security and Set-off agreement whereby Raking should assign the Properties to China Gain with the consideration for the Properties being set-off against the amount in default.

55. Within these two broad questions, there are quite obviously a number of sub-issues which needs to be determined and which can be summarized as follows:

(i)  Whether the Representations were made and do they give rise to a collateral agreement?

(ii)   If so, then in view of the collateral agreement, can Huen enforce the Shares Agreement?

(iii)  Has there been frustration of the Shares Agreement?

(iv)  Has the Shares Agreement been cancelled?

(v)   Whether Huen and Choy had agreed not to proceed with the Shares Agreement on 3 November 2005 and whether such an agreement was confirmed in a phone conversation in mid‑December 2005;

(vi)   Has a new agreement been made, whether Huen was in breach of the Supplemental Agreement (if that represented the parties’ agreement) and whether the parties later agreed to a normal sale and purchase of the Properties?

(vii)  Whether Huen’s claim on the 1^st Cheque, the 2^nd Cheque and 3^rd Cheque is wholly inconsistent with his claim in HCA 1242 of 2006;

(viii)   Did Huen and Choy agree that the sale and purchase of the Properties would be proceeded as a normal sale and purchase transaction on 8 November  2005 or did Choy fail to procure Raking to assign the Properties pursuant to the Security & Set-Off Agreement and/or Memorandum and/or Supplemental Agreement and/or S & P Agreement;

(ix)  Whether Choy is entitled to his counterclaim.

THE EVIDENCE

56. On behalf of Huen and China Gain, Huen himself gave evidence and called a witness, Ms Annie Leung, the solicitor from Shea & Co, who acted for Huen.

57. On behalf of Choy and Raking, Choy alone gave evidence.

58. All three witnesses had adopted their respective witness statements and supplemental witness statements filed as their evidence in chief.

(a)   Evidence of Huen

59. Huen’s evidence can be summarized as follows.

60. Huen came to know Choy in about 1991 when they studied together at the Asia International Open University in Macau, and both became good friends during the two and a half years of being classmates together.  Huen was impressed by Choy as being someone knowledgeable and experienced in fund management business.

61. Towards the end of 1992 or early 1993, Choy introduced Poh to Huen as a former partner of Choy.

62. In February 1993, PWAM was incorporated in Hong Kong and registered with the SFC being licensed to carry on regulated activities under Part V of the SFO including Types 4 and 9 regulated activities (ie advising on securities and asset management).

63. Initially, there were 5 equal shareholders of PWAM, being Huen, Choy, Poh and two others.  All 5 shareholders were also appointed directors.  Each of the initial 5 shareholders contributed HK$200,000.

64. When PWAM was incorporated, Huen was working full time in Macau and Poh was working in Malaysia.  Huen was not experienced in the fund management business and was more interested in being an investor rather than to get involved in the day to day running and operation of PWAM.  Therefore it was agreed between Huen and Poh that Choy would be responsible for the day to day operation of PWAM.  Thus Choy had effectively complete control over the daily operation of PWAM and gave the other shareholders monthly report as to the business of PWAM.

65. From 1993 to 1998 Huen would receive dividends from PWAM ranging from between HK$100,000 to HK$200,000

66. Between the time PWAM was incorporated and until October 2005, the issued share capital of PWAM had increased from 1 million shares of $1 each to 3.3 million shares of $1 each.  There were also changes in the shareholdings of the various shareholders of PWAM.

67. By October 2005, due to changes in the shareholders,  the shareholdings in PWAM were as follows:

(a)   Choy holding 1,650,000 shares;

(b)   Huen holding 1,000,000 shares; and

(c)   Poh holding 650,000 shares.

68. In about March 2002 Poh came to Hong Kong and started to work at PWAM and was appointed as one of the two ROs of PWAM pursuant to the SFO.

69. Poh’s younger sister, Janet Po Lai Yoke, also worked at PWAM as a secretary and after coming to know Choy at PWAM, eventually married Choy.

70. In early 1998, Huen was told by Choy and Poh that PWAM had succeeded in securing appointment as the manager of an investment fund GAPS with HSBC acting as trustees.  Choy was responsible for managing all matters relating to this fund.  It was planned to manage and expand PWAM with a view to listng its shares in the stock market in Hong Kong and it was agreed between the shareholders that most of the profit would be kept in PWAM’s account and only after setting aside enough reserves would the remaining profit be distributed to the shareholders.

71. From 1998 to 2003, Huen received higher dividends than before ranging from HK$200,000 to HK$300,000 per year.  Huen was given to understand that the business of PWAM was doing well and there was substantial cash reserve of over HK$10 million in PWAM.  As a result, Huen trusted Choy.

72. In early October 2005, Poh called Huen and asked for a meeting with Huen.  They met in Macau and Poh suggested to Huen to attend PWAM’s office more often and to keep a watchful eye but did not specify anything particular.

73. After the meeting with Poh, Huen discussed the matter with his own personal assistant, Sunny Yip (also known Lawrence Yip) and asked Sunny Yip to attend PWAM’s office once in a while to look after things on Huen’s behalf as Huen did not have time to do so himself due to his other commitments.  Even then, Huen did not think there was anything wrong.

74. Some days later, Poh again asked for a meeting with Huen and they met in Macau.  On this occasion, Poh told Huen that Choy had formed a company, PWFM, which had similar business as PWAM and that Choy had transferred the management rights of GAPS to PWFM.  Poh also told Huen that Choy also owned another company, PWFS, and was siphoning money to the bank account PWFS or to Choy’s personal account.

75. Huen then realized the matter was serious, asked for more information from Poh and was told that GAPS was siphoned to PWFM which was earning the profit for managing GAPS but that PWAM was paying the costs thereof.  Poh further said that Choy used over US$1 million of PWAM’s money to compensate his client’s loss when investing in GAPS.

76. Poh further told Huen that PWFM’s shareholders were Choy, Peter Wong and Poh and that Peter Wong was a solicitor and also a Director of Compliance of PWAM and that Poh felt that Peter Wong and Choy was trying to kick Poh out form PWFM as Choy had offered Poh HK$40 million to get rid of Poh, but Poh declined that offer.  Poh said that Choy had everything in his control since Peter Wong and Choy’s wife sided with Choy, that Poh was not even allowed to look at PWAM’s documents and asked Huen to do something about it.

77. Huen then realized his own interest in PWAM was in jeopardy and he had been betrayed by Choy and Poh.  He also believed that Poh came to him only because Poh wanted Huen to go against Choy since the shareholding of Poh and Huen combined would equal that of Choy.

78. Huen told Poh that Huen would report the matter to the police and got Poh to agree to tell the truth to the police.  Huen further told Poh to go back to the office to locate whatever relevant documents he could.

79. Until he was told by Poh, Huen had no knowledge of PWFM.  Subsequently Huen found out that PWFM was incorporated around 23 December 2003 with Choy, Poh and Peter Wong being the directors with the shareholding of PWFM being held by corporate vehicles for each of the three of them.

80. As for PWFS, Huen again had no knowledge of PWFS until he was told of it by Poh.  Huen then found out that Choy was the sole shareholder and director of PWFS.

81. After being alerted by Poh, Huen discovered the following wrongful acts which were done behind his back and without any valid board resolution of PWAM:

(a)   By an undated letter from PWAM signed by Choy and addressed to HSBC Trustee (Hong Kong) Ltd.  HSBC Trustee (Hong Kong) Ltd was informed that with effect from 1 November 2003, PWFS was appointed the sole distributor of GAPS and was asked to release all charges other than management fee and performance fee to PWFS.

(b)   By a letter dated 6 November 2003 signed by Choy on behalf of both PWAM and PWFS to HSBC Trustee (Hong Kong) Ltd, HSBC Trustee (Hong Kong) Ltd was instructed to transfer all relevant charges of GAPS to the bank account of PWFS in Singapore.

(c)   Choy used PWAM’s funds to pay for the transfer of 150,000 shares from each of Liu Jiunn Lieh and Chang Ya Ting to Choy and Poh on about 15 January 2004.

(d)   By a Deed of Retirement and Appointment dated 1 April 2004 and executed between PWAM (signed by Choy), HSBC Trustee (Cayman) Ltd and PWFM (signed by Peter Wong), PWAM retired as manager of GAPS and PWFM was appointed new manager of GAPS with effect from 1 April 2004.

(e)   By an Investment Management Delegation Agreement dated 1 April 2004 signed between PWAM (signed by Choy) and PWFM (signed by Peter Wong) PWFM delegated the management of GAPS to PWAM with effect from 1 April 2004.

(f)   By a letter dated 1 April 2004 from PWFM and acknowledged and accepted by PWAM, it was agreed that only 10% of the management fee and performance fee for managing GAPS would be paid to PWAM.

(g)   By a letter dated 12 May 2004 from PWAM (wrongly stated to be from PWFM in the witness statement of Huen) to HSBC International Trustee Ltd, the management fees and performance fees of GAPS were directed to be paid to the bank account of PWFM in Singapore.

82. From such arrangement, it could be seen that PWFM received the management and performance fees of GAPS and only paid 10% of same to PWAM.  PWAM was then made to pay all the operating costs and expenses for the management of GAPS out of the 10% of the fees for managing GAPS while 90% of the said fees were siphoned to PWFM.

83. Upon such discovery by Huen, Huen tried to call Choy with a view to finding out what happened but could not reach Choy until about 10 or 12 October 2005.  Over the phone, Huen asked Choy what had happened to PWAM and Choy replied that all was normal.  Choy said he was in the United States and asked Huen to trust him.  Huen asked to meet with Choy as soon as Choy returned to Hong Kong and Choy agreed.

84. On or about 14 October 2005, SFC had issued a notice to PWAM to produce document and answer written questions.  Huen later learned that this was in respect of certain irregular conduct of Choy.

85. In the morning, Poh called Huen to say that a report had been made to the police because Peter Wong had refused Poh to look at PWAM’s documents.  Huen then attended the office of PWAM in the afternoon at which time Peter Wong allowed Poh to look at the documents of PWAM.  Poh then told Huen there were problems after looking through the documents.  Huen then called Choy to attend a board meeting.

86. The board meeting was held at Golden Dynasty at Shun Tak Centre on 15 October 2005 (conceded by Huen in cross examination to be 17 October and not 15 October)  and was attended by Huen, Choy, Poh, Annie Leung, Ms Fanny Lai (an accountant of Messrs Fanny Lai & Co) and Sunny Yip.

87. When Choy arrived, Choy said he was on a tight schedule as he had to fly off to Korea that afternoon.  Huen confronted Choy why PWFM was formed and the income of PWAM switched to PWFM and demanded an explanation.  Choy did not reply despite Huen pressing for an explanation.  Huen said unless Choy could give a satisfactory explanation and compensate Huen’s loss and damages, Huen would report the matter to the police. Choy then said he had to go to Korea for 2 to 3 days and would contact Huen to settle the matter when he returned.  Choy then left the meeting.

88. Huen then had his solicitors write to PWAM asking for interim audited accounts of PWAM and PWFM up to 30 September 2005 as well as minutes of all board meetings and shareholders’ meetings of PWAM from 1 January 2003 up to 18 October 2005.

89. Huen also requested Messrs Fanny Lai & Co to give a fair valuation of Huen’s shareholding in PWAM.  After obtaining such valuation, Huen’s solicitors by letter demanded from Choy compensation arising from the transfer of assets from PWAM to PWFM.  The “initial figure” requested in the letter was HK$30 million.

90. Some time after 11.30 pm on 18 October 2005, Poh called Huen who was in Macau and told Huen that Choy, Peter Wong and a majority of the staff of PWAM (about 12 staff) had tendered their resignation.  Huen was told that Choy, by email to Poh on 18 October 2005 at 11.39 pm gave notice that Choy resigned as the RO, director and any employment position in PWAM with immediate effect.  Choy’s wife likewise resigned.  Poh further said that Poh discovered that the staff had been deleting data from the computers and destroying documents since the afternoon of that day despite Poh sending an email to all staff that the business records were properties of PWAM.

91. Huen then arranged to meet Poh the next day.  Poh also said that he would like to make a report to the police as Poh discovered further wrongful acts of Choy in using US$1.2 million of PWAM’s money to compensate client and Choy’s wife forging Poh’s signature in certain documents.  Huen agreed to make a report to the police and both Huen and Poh then went to the Waterfront Police Station at about 1.00 am on 19 October 2005 to make the report.

92. Because of Choy’s resignation, PWAM did not have the required 2 ROs as required by the SFO, and a meeting was held with the SFC on 19 Octoeber 2005 at about noon time attended by Poh and Annie Leung.  Following the meeting, PWAM suspended all the regulated activities except for handling redemption.

93. Huen and Poh went to the office of PWAM at about 3 pm on 19 October 2005.  Huen then instructed Annie Leung to issue a formal notice to all the directors to attend a Board meeting of PWAM on 22 October 2005.  That notice was then issued by Shea & Co to all the directors.

94. By letter dated 19 October 2005 from PWFM to PWAM, PWFM terminated the Investment Management Delegation Agreement dated 1 April 2004.

95. On 19 October 2005 at about 5.00 pm another meeting was held with the SFC attended by officers from HSBC, Poh and Annie Leung (on behalf of Huen).

96. After the meeting Annie Leung told Huen that SFC had advised them to report the matter to the ICAC.  Huen then went with Annie Leung to the ICAC to make a report.

97. Huen sought and was advised by lawyers from the Cayman Island that the termination of the Investment Management Delegation Agreement dated 1 April 2004 was invalid since not less than one month’s written notice had to be given for a valid termination.

98. By email dated 20 October 2005 from SFC to Poh, the SFC reminded PWAM to suspend all regulated activities immediately except for handling customers’ redemption requests.

99. Because Choy had left PWAM without giving any advance notice, an urgent directors’ meeting was held on 20 October 2005 at which Huen was elected chairman and Poh was elected as the CEO.

100. A further meeting was then held with SFC on 21 October 2005 as the SFC was concerned with the state of affairs of PWAM.

101. On 22 October 2005 a board meeting of PWAM was held at the Macau Jockey Club.  Present at that meeting were Choy, Poh, Annie Leung, Fanny Lai, Sunny Yip and Huen.  Huen confronted Choy saying that Choy had taken away the management right of GAPS, misappropriated funds of PWAM of some US$1.2 million to pay Choy’s own debts and Choy’s wife had forged Poh’s signature and asked Choy how he was going to resolve these matters.  Choy admitted his wrongdoings and apologized.

102. Huen further said that Choy had betrayed Huen’s confidence in Choy and unless the matter can be resolved by negotiation, else Huen will have to resort to legal proceedings.

103. Choy asked to be given a chance and not to report the matter to the police.  Choy further pleaded that he was being investigated by the SFC and under great pressure and promised to compensate Huen for his losses.

104. In light of that response from Choy, Huen was prepared to resolve the matter amicably without resorting to legal proceedings.  Huen then took Choy to the Cigar Bar where the two of them discussed the amount of compensation.

105. Huen initially asked for HK$60 million to settle.  After discussion, Huen agreed to settle for HK$40 million on the basis of Choy buying out Huen’s shares for that amount.  Huen further agreed to withdraw his complaint to the ICAC and would not bring any further action against Choy and that Poh would also withdraw his complaint made to the police.

106. As for the amount of the compensation, Choy suggested to pay firstly HK$10 million with the balance to be paid by post-dated cheques.  Huen then told Choy to discuss the details with Annie Leung so she could prepare the necessary agreement.

107. When the matter was resolved, all concerned signed on the minutes prepared by Annie Leung which only recorded the withdrawal of resignation of Choy.

108. Following the oral agreement reached with Choy, Peter Wong and the staff who had resigned as well as Choy resumed work at PWAM’s office.

109. By letter dated 24 October 2005 from PWFM to PWAM, the termination of Investment Management Delegation Agreement dated 1 April 2004 was withdrawn.

110. By another letter also dated 24 October 2005 jointly from PWAM and PWFM, the SFC was informed of the withdrawal of termination notice.

111. On 25 October 2005, Huen withdrew his complaint to the ICAC through Annie Leung.  Messrs Shea & Co then wrote to SFC informing them of the withdrawal of Choy’s resignation and the withdrawal of complaint to the ICAC.

112. After discussing with Choy, Huen and Choy worked out a schedule for the payment of the HK$40 million by Choy for buying out Huen’s shares in PWAM.  As a result, the Shares Agreement, which was prepared by Annie Leung, was signed at the office of PWAM on 26 October 2005 which contained the following provisions:

(a)   Upon signing of the Shares Agreement, Choy would procure PWFM to transfer 105,779.81 units of Global Arbitage Strategy Fund Plus A (USD) to Huen which amounted to HK$10 million as initial payment;

(b)   The balance of the HK$30 million would be paid by Choy by 3 instalments, $10 million on or before 25 January 2006; a further $10 million on or before 25 April 2006 and the final $10 million on or before 25 July 2006;

(c)   For the payment of the $30 million, Choy would provide Huen with 3 personal cheques.

113. The transfer form for the 105,779.81 units of Global Arbitrage Strategy Fund Plus A (USD) was duly signed and transferred to Huen after the Shares Agreement was signed.  Likewise 3 post dated cheques were also made out and signed by Choy and given to Huen.

114. After the Shares Agreement was signed, the management of PWAM was handed back to Choy, Poh and Peter Wong. Huen remained as the chairman at the suggestion of Choy and Poh but did not take active part in running the daily business of PWAM.

115. As for Choy’s allegations made in the Consolidated Defence and Counterclaim :

(a)   Huen denies having made the Representations to Choy;

(b)   Huen denies sharing the Fundamental Assumption with Choy that he would be able to resume his position as the RO of PWAM, or having the Implied Condition in the Shares Agreement.  Huen further denies that Choy had ever stated in any discussion with Huen that Choy would only agree to buy Huen’s shares in PWAM if Choy could be reinstated as the RO of PWAM;

(c)   Having agreed to sell his shares in PWAM to Choy, it was for Choy to decide how to run PWAM or who would be the RO which was not a concern of Huen;

(d)   Choy was the one with the experience in fund management, the person involved with running PWAM and the one who dealt with the SFC, Choy would have assessed who would be the RO of PWAM, a matter which Huen had no control over, but would be prepared to assist Choy if he could after selling his shares in PWAM;

(e)   Huen would have no objection if Choy wanted to be re-appointed the RO and director of PWAM, but ultimately, that was between Choy and the SFC who was investigating other matters handled by Choy;

(f)   Choy had retained Herbert Smith to advise him and Deacons was also representing PWAM to deal with the SFC.

116. SFC wrote to PWAM on 3 November 2005 declining the reinstatement of Choy as the RO and also reserved the right to investigate the matters raised but later withdrawn by Poh.  The letter was addressed to Poh and Huen expected Poh to inform Choy upon receipt of the letter.

117. Huen denies the allegation made by Choy that they had agreed to cancel the Shares Agreement on 3 November 2005 when it became known that the SFC declined to reinstate Choy as the RO.  On the contrary, Huen says that on 4 November 2005, Huen discussed with Choy the question of security or guarantee for Choy’s liability to pay under the Shares Agreement as Huen was concerned about Choy’s financial position if Choy was not able to resume his position as RO.  Choy represented to Huen as follows:

(a)   Choy and his wife were the only shareholders and directors of Raking which was the registered owner of the Properties;

(b)   The Properties had a market value at the time of some HK$38 million and which was subject to a mortgage loan of around HK$16 million, therefore worth a net equity value of some HK$22 million.  The Properties could be put up as security and/or guarantee for Choy’s liability to pay under the Shares Agreement.

118. Huen then agreed to take the Properties as security and it was agreed between them (and also by them on behalf of Raking and China Gain respectively) that :

(a)   Choy would procure Raking to put up the Properties as security for Choy’s liability under the Shares Agreement;

(b)   Should Choy default in payment under the Shares Agreement, Choy would procure Raking to and Raking would assign the Properties to China Gain and the consideration for the “purchase” would be set off against the amount in default.

119. As a result of what was agreed above, Annie Leung then prepared the Memorandum and that Memorandum was signed by Choy on behalf of Raking and by Huen on behalf of China Gain by which Raking agreed to assign the Properties to China Gain for HK$38.4 million.

120. The same day, ie 4 November 2005, Annie Leung also prepared the Supplemental Agreement which was also signed by Choy and Huen, paragraph B of the Recital confirmed that the parties had procured the signing of the Memorandum as a guarantee for Choy’s liability under the Shares Agreement.

121. Then on 8 November 2005, Raking and China Gain entered into the S & P Agreement by which Raking agreed to assign the Properties to China Gain for HK$38.4 million and the S & P Agreement was registered in the Land Registry on 30 November 2005.

122. In so far as the S & P Agreement made provision for the payment of a deposit, Huen says that as a matter of fact, the question of payment of a deposit was never raised or discussed (until it was raised by Choy’s solicitors by letter dated 11 April 2006).  No deposit was ever intended to be paid since the S & P Agreement was entered into by way of security or guarantee for Choy’s liability under the Shares Agreement and therefore the question of consideration for the transfer of the Properties would only arise upon Choy’s default in payment under the Shares Agreement.

123. In respect of the allegations by Choy in the Consolidated Defence and Counterclaim, Huen says as follows:

(a)   The Memorandum and the Supplemental Agreement has nothing to do with Choy’s intended dealings with Oria, whether as alleged or at all.  Having agreed to sell his shares in PWAM, Huen was not interested with Choy’s discussion and dealing with Oria and it was only after 5 November 2005 that Huen came to know of PWFM and Oria signing a ‘memorandum of understanding’ of that date appointing Oria as the manager of GAPS subject to HSBC’s approval.

(b)   After signing the S & P Agreement, Choy had on his own volition discussed with Huen that the SFC would not approve his reinstatement as RO and told Huen that Choy planned to appoint another manager to take up GAPS.  Therefore Choy asked Huen to remain as a director of PWAM for the time being so as to show the outside world that the dispute had been amicably resolved and there was continuity of management in PWAM.  Huen agreed to do so to help out Choy as Huen did not think Choy would refuse to perform his obligations under the Shares Agreement.  There was no basis to suggest that Huen had ever repudiated the Supplemental Agreement as alleged by Choy.

124. On 29 November 2005 Huen attended a Board meeting of PWAM at Choy’s request.  There a resolution was passed to appoint China Everbright as the new manager for HSBC’s consideration.  Then Huen also remained for another board meeting of PWAM.  However, the daily running of PWAM was left to Choy and Poh.

125. Still later Huen found out that PWAM had transferred it brokerage and advisory business to Noble Apex Advisors Ltd by written agreement dated 15 December 2005.

126. Huen denies the allegation of Choy that during a phone conversation in mid-December 2005 between them, they had mutually agreed to release each other from their mutual obligations under the Shares Agreement and says there was never such an oral agreement.

127. Huen says he had no reason to release Choy from Choy’s obligations under the Shares Agreement as Huen had agreed to sell his shares to Choy, and Choy knew that Choy’s reinstatement as a RO was not within Huen’s control and not Huen’s business.  The decision not to continue the business of PWAM was made by Choy and Poh, and not by Huen.

128. On 11 January 2006, Choy asked Huen to extend the time for payment of the 1^st Cheque and the 2^nd Cheque and to postpone the completion date of the Properties to 4 May 2006 as Choy was waiting payment from the redemption of GAPS units. Huen agreed to extend time for Choy.  Thus a letter dated 11 January 2006 was sent by Huen’s solicitors to Choy’s solicitors to confirm the extension of time for completion of the Properties to 4 May 2006.  Choy’s solicitors replied also confirming the postponement of the completion date to 4 May 2006.

129. On 16 January 2006, it was announced that SHK Financial Group would be appointed as the replacement manager of GAPS.  By then it was clear that Choy’s effort to recommence the fund management business of PWAM and PWFM was unsuccessful.

130. By a Deed of Release dated 23 January 2006, between HSBC and PWFM, they released each other from and against all claims, actions, suits and demands of whatsoever nature subject to the terms therein.

131. At the suggestion of Choy and Poh, Huen attended a Board meeting of PWAM on 16 February 2006 in which was discussed matters pertaining to the cessation of PWAM’s business, although Huen need not be involved since he had sold his shares to Choy.  Huen did so to assist.  Also he had not presented the post dated cheques given to him by Choy and did not wish to cause further deterioration in their relationship.

132. Huen also attended another Board meeting of PWAM on 30 March 2006 at the suggestion of Choy and Poh where it was resolved that PWAM would be taken to have ceased business from 1 March 2006; PWAM would surrender its licenses to the SFC; and Poh would cease to be a RO of PWAM.

133. By notice dated 11 April 2006, HSBC informed the investors of the termination of GAPS.

134. Huen further explains that the S & P Agreement was entered into with a view to providing security and guarantee for Choy’s liability under the Shares Agreement and the mutual intention being that if Choy defaulted in payment under the Shares Agreement, the Properties would be assigned to China Gain and the consideration for the purchase would be set off against the amount in default, but if Choy made full payment under the Shares Agreement, the Properties would not be assigned.  Therefore as Choy knew full well, no deposit was paid at the time of the S & P Agreement since the question of consideration would only arise if Choy defaulted in payment.

135. When Choy’s solicitors by letter dated 11 April 2006 asked for documentary evidence of payment of the deposit for the sale of the Properties, Huen started to have concerns over such action of Choy.

136. To test the water, Huen presented the 1^st Cheque to the bank for payment on 12 April 2006 but the 1^st Cheque was dishonoured the reason given being “payment countermanded by drawer”.  Huen tried to call Choy but could not get hold of Choy, then left a message to Choy’s wife that he wanted to speak to Choy.  Choy called back shortly but only told Huen not to call his wife and hung up.

137. On the due date for the 2^nd Cheque, Huen presented the 2^nd Cheque for payment but that was also dishonoured with the reasons “payment countermanded by drawer” and “account closed”.

138. A letter dated 2 May 2006 was then issued through Huen’s solicitors to Choy’s solicitors to inform them that China Gain was ready to complete the sale and purchase of the Properties on 4 May 2006.

139. By another letter of 4 May 2006 Shea & Co enclosed a draft assignment and draft undertaking with a view to complete the sale and purchase of the Properties and also asked for instructions as to how to split the cheques for payment.

140. Despite the above, Choy and/or Raking failed or refused to complete the sale and purchase of the Properties.

141. By letter dated 26 May 2006 from Raking’s solicitors (Messrs Chong, So & Co) to Huen’s solicitors, Raking wrongfully alleged that China Gain failed to complete and thereby repudiated the S & P Agreement.  Such allegation is without basis.

142. By another letter of same date from Raking’s solicitors to Huen’s solicitors, Raking purported to accept China Gain’s repudiation and sought to rescind the S & P Agreement.

143. China Gain denied such allegations of Raking by letter dated 26 May 2006.

144. Raking then wrongfully filed a Memorandum of Rescission with the Land Registry on 26 May 2006.

145. The 3^rd Cheque was presented on or around 25 July 2006 and was dishonoured for the reason that payment was countermanded by Choy.

146. Choy has failed to pay the balance of the HK$30 million under the Shares Agreement and Raking has failed to assign the Properties to China Gain.

147. Huen denies that Huen is liable to Choy for any loss Choy may have suffered as a result of not being reinstated as a Responsible Officer of PWAM and added that as far as Huen knows, Choy had never challenged the decision of the SFC not to reinstate him as a RO of PWAM.

148. Huen further confirms that the Memorandum and the S & P Agreement were made by way of security and/or guarantee for Choy’s liability under the Shares Agreement, so that if Choy satisfied the money judgment due under the Shares Agreement, Huen will not seek to enforce any order to assign the Properties to China Gain.

(b)  Evidence of Annie Leung

149. She is a solicitor with Shea & Co, and have acted for Huen as legal advisor on various matters.  She has known Huen for some 10 odd years.  She had no involvement with matters concerning PWAM or Choy until in early October 2005 when Huen approached her telling her that Huen had learnt of wrongdoings on the part of Choy.  It was then that she became involved.

150. She confirmed the truth and accuracy of Huen’s witness statement (which she had read) in so far as it dealt with her involvement with events that took place since early October 2005.

151. She confirmed that she was present at the board meeting of PWAM held at Golden Dynasty at Shun Tak Centre on 15 October 2005 (conceded by her in cross examination to be on 17 October instead of 15 October 2005) and agreed with what had been said by Huen in his witness statement.

152. She further confirmed that on 18 October 2005, she was responsible for drafting and issuing the letters seeking for the interim audited accounts of PWAM and requesting for minutes of board meetings, the aim being to gather the necessary information to seek advice from the accountant and then to make an initial offer to Choy in an attempt to resolve the dispute with him.  Huen had wanted to resolve the matter by negotiations rather than legal proceedings.

153. On 19 October 2005 Huen told her that Poh wanted to make a report to the police after discovering that Choy had used up to US$1.2 million of PWAM’s money to compensate his client’s loss and suspected that Choy’s wife had forged his (Poh’s) signature causing Poh to lose a lot of money.  Huen agreed to Poh’s suggestion and they went to theWaterfront Police Station where a statement was taken from Poh.

154. She was told by Huen that Choy and Peter Wong together with most of the staff members had resigned on the late night of 18 October 2005.  As a result of Choy’s resignation, PWAM did not have 2 Responsible Officers as required by the SFO, a meeting had to be set up with SFC and officers of HSBC to discuss the situation.

155. She attended that meeting with SFC on Huen’s behalf and went to the meeting with Poh on 19 October 2005 at about noon time.  The meeting with SFC were minuted.

156. About 3 pm on 19 October, she, Huen and Poh went to the office of PWAM where Huen told her to issue a formal notice to all the directors of PWAM to attend a board meeting on 22 October 2005.  That notice was accordingly issued by Shea & Co.

157. Another meeting with SFC was arranged for 19 October 2005 at 5.00 pm and as instructed by Huen she attended that meeting on Huen’s behalf, going there with Poh.  After that meeting with the SFC, she informed Huen that the SFC had suggested to report the matter to the ICAC.  Huen agreed to that suggestion and she then went with Huen to the ICAC to make a report.

158. On 20 October 2005, an urgent director’s meeting of PWAM was held.  Huen was elected as chairman and Poh was elected as the CEO at that meeting.  At that time the regulated activities of PWAM had been suspended and they had to sort out what had to be done in respect of Choy’s wrongful conduct.

159. She also assisted Huen to seek legal advice from Cayman lawyers who had advised that the termination of the Investment Management Delegation Agreement was invalid.

160. On 21 October 2005, she attended a further meeting at the SFC on behalf of Huen at 5.00 pm.  She then received a phone call from Choy saying that Choy would attend the Board meeting on 22 October 2005.  She advised Huen of it.

161. On 22 October 2005, the Board meeting of PWAM was held at the Macau Jockey Club.  She attended at the request of Huen.  She confirmed what was stated by Huen in Huen’s witness statement as to what happened at this meeting (save what happened between Huen and Choy alone at the Cigar Bar when she was not present).  She was only told the result of the discussion between Huen and Choy when both of them returned from the Cigar Bar.  She was also told to prepare the necessary documentation to reflect the settlement agreement between Huen and Choy.

162. Since the matter had been settled, she was instructed to only include in the minutes of the board meeting the withdrawal of resignation by Choy and that the settlement was to be done by way of a separate document.  That was done and the parties signed the minutes.

163. On 25 October 2005, she attended the ICAC with Huen to withdraw the complaint made to the ICAC by Huen as a result of the settlement reached with Choy.  Shea & Co also wrote to the SFC informing of the withdrawal of resignation by Choy and the withdrawal of the complaint to the ICAC.

164. On 26 October 2005, after Choy and Huen had worked out a schedule for the payment of the HK$40 million for buying out Huen’s shares in PWAM, she preapared the Shares Agreement and had the same signed in the office of PWAM by Huen and Choy.

165. On 4 November 2005, she was instructed that a meeting between Choy and Huen was held at the office of PWAM to discuss the security or guarantee for the payment of the HK$40 million.

166. Following the meeting of 4 November 2005, she was told what had been agreed between Huen and Choy and was instructed to prepare simple documents to reflect their agreement.  She then prepared the Memorandum which was signed by Choy (on behalf of Raking) and Huen (on behalf of China Gain).

167. She also prepared the Supplemental Agreement to say that the parties had procured the signing of the Memorandum as guarantee for Choy’s liability to pay for the purchase price of the shares for HK$40 million.

168. She took the view that with the Supplemental Agreement, the Memorandum would be sufficient to achieve the purpose agreed between Huen and Choy, although the Memorandum was framed as if the transaction was a normal conveyancing transaction.  This is also the reason why she later drafted the S & P Agreement as if the transaction was a normal conveyancing transaction.

169. The S & P Agreement was signed between Raking and China Gain for the sale and purchase of the Properties at the price of HK$38.4 million with completion fixed for 4 February 2006 with vacant possession to be delivered upon completion.  It was stated therein that Raking acknowledged receipt of a deposit of HK$3,840,000 though no money was actually paid by China Gain since the Properties were only put up as security or guarantee for Choy’s liability under the Shares Agreement.

170. When the S & P Agreement was signed on behalf of Raking, neither Choy nor Choy’s wife raised any objection in this regard or took issue that the stated deposit was not actually paid.

171. On 29 November 2005, at Choy’s request, Huen attended a board meeting of PWAM at noon time and asked her to be present there as well.  A resolution was passed at that meeting to appoint China Everbright for HSBC to consider as the new manager.

172. On 11 January 2006, Huen told her that Choy had requested to extend the date for payment of the 1^st Cheque and the 2^nd Cheque and to postpone the completion date of the Properties to 4 May 2006 since Choy was waiting for funds from redemption of GAPS units and that Huen agreed to such extensions.

173. By letter dated 11 January 2006, Shea & Co, wrote to Choy’s solicitors to confirm the extension for completion to 4 May 2006.  Choy’s solicitors then replied by letter confirming the extension of the completion date to 4 May 2006.

174. On 16 February 2006, a Board meeting of PWAM was held at the office of PWAM and was attended by Choy, Poh and Huen accompanied by Annie Leung at Huen’s request.  There it was resolved matters pertaining to PWAM’s ceasing business.

175. Choy’s solicitors, by letter dated 11 April 2006, asked for documentary evidence of payment of the deposit under the S & P Agreement.  She found this request to be odd.

176. Later she was told by Huen that the 1^st Cheque was dishonoured upon presentation and the reason given was that payment had been countermanded by drawer.  Still later Huen told her that the 2^nd Cheque was also dishonoured upon presentation with the same reason given for the dishonor and that the account was closed.

177. She then, on instructions, issued a letter dated 2 May 2006 from Shea & Co to Raking’s solicitors to say that China Gain was ready and willing to complete the sale and purchase of the Properties on 4 May 2006.  Under cover of a letter dated 4 May 2006, Shea & Co sent over a draft assignment and undertaking letter to Raking’s solicitors and asked for instructions as to how to split the cheques for payment.

178. Despite what was done by Shea & Co, Raking wrongfully failed or refused to complete.

179. By letter dated 26 May 2006, Raking’s new solicitors, Messrs Chong, So & Co alleged that China Gain failed to complete and thus repudiated the S & P Agreement and purported to accept China Gain’s repudiation and sought to rescind the S & P Agreement.

180. China Gain, by its solicitor’s letter of same date, deny those allegations.

181. On 26 May 2006, Raking wrongfully filed a Memorandum of Recission with the Land Registry without any justification or basis to do so.

(c)   Evidence of Choy

182. Choy is authorized by Raking, the 2^nd defendant in HCA 1242 of 2006 to give evidence on its behalf.

183. PWAM was incorporated in Hong Kong in February 1993 the idea having originated from Choy who invited Huen, Poh and one Sunny Wong to join.  Sunny Wong then brought in Roy Tso.  Originally the five of them held equal shares in PWAM.

184. Choy confirmed that Huen was his classmate in an MBA course in Macau in the early 1990’s.  Huen is the brother of the fourth wife of Stanley Ho, the casino tycoon in Macau while Poh is the brother of Choy’s wife.

185. After its incorporation, PWAM was registered with the SFC and was licenced by SFC to carry out regulated activities under Part V of SFO including Type 4 and Type 9 regulated activities.

186. Choy was the CEO, CIO and the RO of PWAM from the outset and was responsible for the overall management.  Poh was the other RO and became the Director of Marketing since early 2002.  Huen was not involved in any regulated activities of PWAM.

187. In Augutst 2000 the authorized capital of PWAM was increased from HK$1.2 million to HK$3 million by issuing 1.8 million new shares.  Of these new shares, 690,000 shares were issued and allotted to Choy (345,000), Huen (230,000) and Poh (115,000) and to be fully paid up.  There being profits of HK$1,110,000 in the account of PWAM, the remaining 1,110,000 new unissued shares were to be retained as capital of PWAM and to be credited as fully paid up.

188. Later the capital of PWAM was increased to HK$3.3 million, and due to change in the shareholdings, by about 2002, the shareholding in PWAM was Huen (30.3%), Choy (50%) and Poh (19.7%).

189. At all times, Huen, Poh and Choy were the directors of PWAM but Huen took no active part and was more a shareholder than a director.

190. In mid-2003, there was a major re-structuring in the Pacific World Group and Pacific World Wealth Management Ltd (“PWWM”), PWFS and PWFM were established as part of the Pacific World Group together with PWAM.  PWFS was wholly owned by PWAM and PWAM held 25% of the shares in PWWM.  PWAM did not own PWFM, but took very big slice of revenue from PWFM’s business without sharing any expenses.

191. By Trust Deed dated 24 April 1998 between HSBC and PWAM, as amended by various substitution and supplemental deeds, GAPS was established.  It was an umbrella unit trust domiciled in the Cayman Islands, with HSBC being the trustees and PWAM the manager of GAPS.  GAPS was comprised of a number of sub-funds.

192. By a Deed of Retirement and Appointment dated 1 April 2004 between HSBC, PWAM and PWFM, PWAM retired as the manager of GAPS and PWFM was appointed as the new manager thereof.

193. By the Delegation Agreement between PWFM and PWAM dated 1 April 2004, and with the consent of HSBC as trustees, PWAM delegated to PWFM all the powers, duties, discretions and functions exercisable by it under the Trust Deed.

194. According to Choy, the dispute arose when in the summer of 2005, Choy spoke to Poh about his conduct relating to his duties after receiving complaints and queries, but Poh responded by demonstrating a hostile attitude in his work.

195. In early October 2005, Poh, Peter Wong and Choy discussed their disparities resulting in Poh agreeing to leave the Pacific World Group by selling Poh’s shares to Peter Wong and Choy. Peter Wong, a solicitor, was asked to prepare the documentation for the implementation.

196. On 14 October 2005, while Choy was on business in the United States, he was told that police had been called to the office of PWAM and that Huen and Poh had caused a lot of disruption that day.

197. Choy returned to Hong Kong on 15 October 2005 and met Huen for lunch to discuss what had happened and about Poh’s work performance.  Huen brought along Annie Leung, a solicitor of Shea & Co.  After the matter was explained to Huen, Huen made no comment but said Huen would meet Poh the following Monday to discuss the matter.

198. A shareholder’s meeting of PWAM was held on 17 October 2005 at Golden Dynasty in the Macau Jockey Club in Shun Tak Centre, Sheung Wan.  It was attended by Huen and Poh.  Huen brought along Annie Leung, Lawrence Yip and Fanny Lai who was an accountant but not of PWAM.  Choy also noticed a number of unfriendly males outside the room.

199. During the meeting, accusations of wrongdoings were made against Choy.  Choy denied such accusations and said he had done nothing to undermine the interests of PWAM’s shareholders.

200. At the Golden Dynasty, Huen demanded HK$30 million from Choy to settle the matter.  When Choy hesitated, Huen then took Choy over to the Cigar Bar with only Choy and Huen present.  At the Cigar Bar when the two of them were alone, Huen advised Choy to accept the suggestion of purchasing Huen’s shares in PWAM for HK$30 million. Huen made veiled threats by asking the “well being” of Choy’s family and which Choy understood to be subtle threats towards his family members.  As a result Choy feared for the safety of his family.  In view of the situation, Choy made no objection to the proposal of Huen but asked Huen to liaise with Peter Wong and that Choy would settle it upon Choy’s return from his business trip to Korea.

201. Choy then left the meeting to go to the airport but on his way, phoned Peter Wong to brief him about what happened at the meeting asking Peter Wong to work with Huen to settle the matter.

202. On 18 October 2005, Choy received a letter from Shea & Co demanding for HK$30 million to be paid to Huen with breakdown.

203. When Choy returned to Hong Kong on 18 October 2005, he decided to resign from PWAM because of Huen’s background and what Huen had done, Choy feared for his safety and that of his family.  Choy felt it would be difficult to reason with Huen.  Choy then sent an email to Poh at about 11.39 pm that night to resign as Responsible Officer, director and any employment position in PWAM with immediate effect.

204. After tendering his resignation, Choy received resignations from 11 staff of PWAM.

205. On 19 October 2005, Huen, Annie Leung and Poh went to the police and made a number of serious and unfounded allegations against Choy and his wife.  The police had never asked Choy for any statement or to assist in their investigation in the matter.

206. Huen and Poh also made report to the SFC and on 19 October 2005, Choy received a call from the SFC asking for an explanation for Choy’s resignation.  Choy then attended the SFC that same morning with one Mr Kwan, the compliance officer of PWAM (being one of the staff who had tendered his resignation on 18 October 2005 by email). Choy explained to the SFC that he had tendered his resignation as RO of PWAM since Choy had concerns about Huen’s background and fears for his family safety.  At the end of the meeting, the SFC asked to be informed of any progress of the situation and also requested Choy to submit a Form 5 reporting that Choy had ceased to be the RO of PWAM.  Mr Kwan said to the SFC officer that under SFO, they had 7 days to submit the Form 5 but the SFC officer said they had to regard PWAM as having only one functional RO in the meantime.

207. On 19 October 2005, Huen and Poh held a Board meeting of PWAM without notifying Choy at which it was resolved to accept the resignation of Choy and to inform SFC of same.

208. On 20 October 2005, Huen made a complaint to the ICAC against Choy but the ICAC had never asked Choy for any statement or to assist in investigation of the matter.

209. On 20 October 2005, Poh discussed with SFC as to PWAM’s matter and Choy’s resignation following which all regulated activities of PWAM were suspended save for clients’ redemption.  With regulated activities suspended, investors’ interest could be jeopardized during the period of suspension since investments could not be realized, acquired or switched.  It would not be acceptable to the trustees for such a situation to continue for any significant period of time and HSBC, as trustee, would have intervened and liquidated the funds or appointed a new manager.  Resolving the issue of 2 RO was not easy.  If a fresh application for a RO was made, SFC’s licensing Information Booklet states that it would take 10 weeks to approve, ie for some two and a half months PWAM would not be able to resume normal business. That would not be acceptable to the trustees.  It was against this background that the Shares Agreement was agreed to be cancelled by all concerned on 3 November 2003 when it became known that SFC would not reinstate Choy as RO of PWAM.

210. By email dated 20 October 2005, Poh confirmed to the SFC that PWAM had ceased its activities save for clients’ requests for redemption.  By email of the same date, SFC reminded PWAM to suspend all regulated activities.

211. On or about 20 October 2005, Cayman Island Monetary Authority ordered suspension of GAPS.

212. Around 21 October 2005, Poh met with SFC and filed a Form 5 (unknown to Choy) notifiying SFC that Choy had resigned from PWAM with effect from 19 October 2005.

213. By letter dated 19 October 2005, Shea & Co acting for Huen, called for a director’s meeting of PWAM to be held on 22 October 2005.  That meeting was attended by Huen who brought along Annie Leung and Lawrence Yip.  The board meeting held on 19 October was not mentioned, but Choy was told that after discussion with SFC, SFC had temporarily suspended all regulated activities of PWAM and CIMA had suspended GAPS.

214. At the meeting of 22 October 2005, Huen proposed to sell Huen’s equity in PWAM to Choy for HK$40 million.  To persuade Choy to accept, Huen and Annie Leung told Choy that if Choy was prepared to do so, Choy would have no problem resuming his former position as RO of PWAM so that PWAM could continue with its business as before. Huen said he would disappear from PWAM after selling his shares to Choy.

215. Contrary to what was said by Huen, that discussion concerning the HK$40 million did not take place in the Cigar Bar, but in the Golden Dynasty.

216. On the same occasion, there was also discussion of Poh selling his shares in PWAM to Choy.  That resulted in an agreement being signed between Choy and Poh on 26 October 2005 for the sale of Poh’s shares in PWAM to Choy.

217. Choy also received an organizational chart during the meeting of 22 October which Huen and Poh said was a chart requested for by SFC and said that the chart would be used until after completion of the sale of the shares.  On the chart, Choy saw that his role was “Principal/Responsible Officer”.  Choy was also told that since Choy did not attend the office the past week, Poh was acting as CEO.

218. A resolution was then passed at that meeting on 22 October 2005 that Choy would withdraw his resignation with immediate effect and resume his duties in PWAM as soon as possible.

219. Choy was assured at that meeting by Huen and Annie Leung and understood his position in PWAM to have remained unchanged.  Choy considered it essential and crucial that he was still RO accredited to PWAM for Choy to be in proper control of PWAM, otherwise it was inconceivable and Choy would have no reason to buy their shares.

220. On 21 and 22 October 2005, Choy noted that it was still published on the website of SFC that Choy was still one of the RO of PWAM.

221. On 24 October 2005, the SFC website still stated Choy to be RO but was not accredited to PWAM.  Choy then raised the issues with Huen and Poh who, together with Annie Leung, told Choy that the Form 5 in respect of Choy’s resignation had been submitted to the SFC but assured Choy that the Form 5 could be validly withdrawn within 7 days and that there would be no problem for Choy to resume his former position as RO of PWAM.  Choy required them to prove that his status as RO would be resumed thus the agreements were not signed on 24 October 2005.

222. A letter dated 24 October 2005 signed by all the directors of PWAM was sent to SFC confirming PWAM as the “Advisor” of GAPS and that PWAM was duly empowered to continue to discharge any duties as Adviser to GAPS.  An organizational chart was attached to this letter to the SFC confirming that Choy’s position was “Principal/Responsible Officer” of PWAM.  The organizational chart was prepared by Annie Leung on Huen’s instruction on or about 24 October 2005.

223. The same day, PWAM also sent out notices to its business partners to effect that PWAM’s operation would continue as usual, also enclosing a copy of the same organizational chart sent to SFC.

224. On 25 October 2005, PWAM sent an undated letter to SFC to the effect that PWAM would not accept the resignation of Choy and that Choy had agreed to withdraw his resignation with immediate effect and to resume his duties in PWAM.  The letter also confirmed reinstating Choy as the RO of PWAM with immediate effect.

225. On 25 October 2005, Shea & Co, on behalf of Huen, informed SFC that Huen had withdrawn his complaint from the ICAC that day.

226. On 25 October 2005, SFC replied by letter that SFC must receive a “satisfactory written explanation outlining the allegations made” by Poh before considering PWAM’s request to reinstate Choy’s licence as RO in PWAM.  Both Huen and Poh assured Choy that this showed that SFC was processing Choy’s reinstatement as RO of PWAM and promised to withdraw all allegations and tender the written explanations to SFC as soon as the agreements for selling their equities were signed.

227. Choy insisted that his status as RO must be re-instated first otherwise the transfer of the shares would be meaningless.  Huen and Poh agreed but said it was important to get the agreement signed in due course to fix the deal, and that they, like any other reasonable businessman, would not proceed with the deal if Choy’s licence as RO could not be re-instated.

228. Relying on what had been said to him, Choy entered into the Shares Agreement on 26 October 2005 with Huen for Huen to sell his 1 million shares in PWAM to Choy for HK$40 million.

229. Pursuant to the Shares Agreement, Choy provided 3 personal cheques to Huen being the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque.  Choy also procured PWFM to execute and transfer 105,779.81 units of Global Arbitrage Fund Plus A (USD) to Huen with a value of HK$10 million.

230. After the Shares Agreement was signed, Poh withdrew the complaint he had made to the police against Choy.

231. Poh also sent a letter to SFC dated 26 October 2005 to explain why he withdrew the unfounded allegations he had made to the police.

232. PWAM requested SFC to process Choy’s reinstatement as a RO as a matter of urgency.

233. Strenuous efforts were made by Huen and Poh to reinstate Choy as RO but such efforts were unsuccessful.

234. In the days following 26 October 2005, there was a series of exchanges of letters between SFC and Poh.  SFC was not satisfied with Poh’s explanations due to the substantial inconsistencies shown in Poh’s stance before and after.

235. By email of 27 October 2005, CIMA informed PWAM that Poh’s explanations raised more questions than answers, but that if the SFC were satisfied with Poh’s explanations and reinstated Choy as a RO of PWAM, then they would instruct HSBC to lift the suspension on GAPS.

236. On 3 November 2005, SFC wrote to PWAM declining to reinstate Choy as RO of PWAM after having taken legal advice on the matter to the effect that section 123 of the SFO provided no power for the SFC to decide on PWAM’s request to reinstate Choy as a RO of PWAM once the Form 5 had been submitted.

237. SFC further reserved the right to refer those matters which remained unresolved from Poh’s allegations to their Enforcement Division for further enquiries.

238. Choy says he was completely innocent of the matter of the US$1.2 million allegation and had no clue what Poh was talking about in his statement made to the police. Eventually that allegation was dropped.

239. Without 2 ROs, PWAM could no longer operate the business of the Pacific World Group and it was then decided (ie 3 November 2005) to wind up PWAM and not to proceed with the Shares Agreement.  In a telephone conversation with Huen in mid-December 2005, Huen again confirmed that the Shares Agreement would not be proceeded with.

240. Under the Trust Deed by which GAPS was set up, if the trustees terminated GAPS, PWAM could not recover the distributor fee, therefore the best way to maximize PWAM’s value was to find a new qualified manager to take over managing GAPS to enable PWAM to recover the payment receivable from the distributor fees of GAPS, else there would be a risk that GAPS would be liquidated and such payment fully written off.

241. 4 November 2005, Poh, Peter Wong and Choy approached a staff of Oria to ask if they would be interested to take over management of GAPS.  Oria expressed an interest and went on to discuss preliminary terms for the sale of the management rights to them.

242. Oria however raised concerns about the background of Huen’s association with money laundering.  Choy was required to put in writing to confirm that Huen had no investment in GAPS directly, indirectly nor did Huen ever refer any money in GAPS.

243. On the afternoon of 4 November 2005, Huen went to the office of PWAM with Lawrence Yip and Annie Leung and three other unfriendly persons to confront Peter Wong, Poh and Choy.  Huen accused them of making a secret deal behind his back to sell the management rights of GAPS to others.  They told Huen that HSBC’s attitude would be similar to that of SFC and if HSBC felt uncomfortable, they would choose to liquidate.  Choy, Poh and Peter Wong was concerned that Huen’s intervention would jeopardize the outcome of their attempt to sell the management rights to Oria.  They then requested Huen not to get involved and to ensure that, they said to Huen that if Huen would not obstruct the sale to Oria, Huen could still get HK$40 million as agreed under the Shares Agreement even if Choy’s status as RO could not be reinstated and PWAM had to cease business.  They further said to Huen that if HSBC had any uncomfortable suspicion about the transfer, HSBC as trustee would definitely liquidate.

244. Huen said he was concerned that he might be left in the dark and the deal to sell the management rights to Oria completed without his knowledge and that the three of them would go away with the money.  Huen also understood that the three of them did not have much assets and of the three of them, the only valuable asset was Choy’s property in Bel‑Air.  Huen then pressed Choy to use his property as guarantee for payment of the $40 million in exchange for the non-intervention in the process.

245. Thus the four of them agreed:

(a)   Huen and Choy would execute a preliminary agreement for the sale of the Properties to Huen for HK$38.4 million as a form of guarantee;

(b)   Huen would resign from directorship of PWAM upon the execution of a formal sale and purchase agreement, to ensure that Huen would not participate in any future sale of the management rights of PWAM.  It was anticipated that the formal agreement would be signed on 7 November 2005;

(c)   From the date of signing of the formal agreement, the control of PWAM would revert to Choy; and

246. Following that verbal agreement, Annie Leung drafted the Memorandum dated 4 November 2005 and she also drafted the Supplemental Agreement also dated 4 November to reflect the terms that had been orally agreed.

247. Huen and Choy signed the Memorandum and agreed that a formal agreement would be signed on 7 November 2005.  The Memorandum though signed by Huen, but the identity of the purchaser was left blank.

248. However, before the Supplemental Agreement was completed, Huen left the office as he was busy.

249. When Annie Leung completed drafting the Supplemental Agreement, she asked Choy to sign it first saying she would furnish Choy with a copy after it was signed by Huen, supposedly on 7 November 2005.  Choy has kept a copy of that document only with his signature but without Huen’s on it.

250. In retrospect, Choy says that paragraph 3 and Recital B and C did not fully reflect the factual situation at the time, but he did not spot these points when he signed the Supplemental Agreement.  Choy had thought that Recital B referred to the Properties being guarantee for the sum of HK$40 million which Huen would receive upon the deal with Oria being completed, and in respect of Recital C, Choy had simply focused on the reference to a full and final settlement of the dispute between him and Huen.

251. In any event, Choy says that Huen did not sign the Supplemental Agreement but had subsequently repudiated its contents anyway.

252. Later, Huen did not resign from directorship of PWAM, nor did Huen return control of PWAM to Choy.

253. Since their dispute, Huen had appointed himself as chairman without the approval of the Board of Directors and caused PWAM to remunerate Huen HK$30,000 per month until 31 December 2005 even thought PWAM had no business and was about to be wound up after 3 November 2005.

254. Huen also placed Annie Leung and Lawrence Yip on the company of PWAM and arranged for them to be remunerated HK$25,000 per month each until 31 December 2005.

255. On 7 November 2005, Peter Wong called Annie Leung to ask why Lawrence Yip was still in the office of PWAM as usual.  After asking Huen, Annie Leung replied that Yip would leave once the relevant documents were signed.

256. On 7 November 2005, Annie Leung told Choy that she had not completed the formal agreement for sale and purchase of the Properties and the execution had to be deferred to 8 November 2005.

257. At 12.30 pm on 8 November 2005, Peter Wong and Choy attended the office of Shea & Co, Huen and Lawrence Yip came later and asked Annie Leung to leave the conference room.  Huen then said that the proposed deal with Oria was worth an “astronomical sum” and that Huen would be at a disadvantage if he signed the supplemental to the Shares Agreement, insisting that it would be worth much more than $40 million to buy him out.  After negotiating for some half an hour including a phone call made to Poh, they came to agree a figure verbally that Huen would get a fixed sum of $40 million for the amount of sale below $100 million and a 20% of the sale amount that exceeded $100 million on top of the fixed sum of $40 million.  Huen then asked Choy to sign another document to reflect that agreement but Choy rejected being upset at the continuing demand of Huen without contributing in any way.  Huen did not insist but said that Lawrence Yip and Annie Leung would closely monitor the situation for him.

258. During the meeting, Huen also proposed to proceed with the sale and purchase of the Properties as a normal sale and purchase transaction.  Choy said he had no problem with such proposal as the price was reasonable and that he needed money for his living.

259. As a result Choy executed the S & P Agreement for Raking in the office of Shea & Co.  When Choy signed the S & P Agreement, it was stated in Part I to the Third Schedule that China Gain was to pay a deposit of HK$3,840,000.  However, Huen said he had forgotten to bring the cheque.  Choy trusted Huen and was prepared to sign the S & P Agreement as well as the receipt of deposit clause letting China Gain to pay the deposit later.  Choy did not follow up closely the payment of the deposit after signing the S & P Agreement.  As China Gain had not paid the deposit even after a few months, on or about 10 April 2006, Choy instructed his solicitors to follow up the matter with Shea & Co.

260. At the meeting on 8 November 2005, Huen did not signed the S & P Agreement and Annie Leung told Choy that Huen would sign later.

261. Under the S & P Agreement, the purchaser (later known to be China Gain) should deliver to the Vendor’s solicitors on the date due for payment a cashier order or a cheque of a solicitor’s firm in Hong Kong in favour of the Vendor for the relevant amount, and completion should take place on 4 February 2006, time being of the essence.

262. After the meeting on 8 November, Lawrence Yip appeared in the office of PWAM as usual and Annie Leung attended all relevant meetings as the legal representative of Huen.

263. On 24 October 2005, Lawrence Yip was employed solely by Huen’s decision alone as Senior Compliance Officer with a monthly salary of HK$25,000, but Yip did not prove his academic qualification or experience in that post.  In fact, PWAM had already two compliance officers, Peter Wong and Mr Kwan.

264. Lawrence Yip came to the office every day from 9.00 am till noon sitting in the glass room and calling the staff one by one to interrogate them on various matters, but never participated in PWAM’s compliance work.

265. On 24 October 2005, Annie Leung was employed again by the sole decision of Huen as company secretary with a monthly salary of $25,000.  She did not attend the office of PWAM but was still a solicitor with Shea & Co throughout and stressed at all times that she represented Huen.

266. Huen has since 8 November 2005 failed to perform his obligations as set out in the Memorandum.  Crucially, Huen did not resign from the directorship of PWAM upon executing the S & P Agreement, nor had the control of PWAM reverted back to Choy.

267. On 10 November 2005, an email from HSBC expressed surprise to receive a fax that morning from Partners Capital Fund Management Ltd (“PCFML”), indicating that they had been approached to take over PWFM’s management rights in respect of GAPS.

268. Choy, Poh and Peter Wong also knew nothing about such a company.

269. They then contacted Huen who admitted that he had contacted PCFML.  They said to Huen that his move would jeopardize the whole matter and the deal would collapse resulting in their not getting back the money.

270. Peter Wong then emailed HSBC to confirm that Oria was the only manager to have signed a memorandum of understanding with PWFM and copied same to Annie Leung.

271. On 11 November 2005, HSBC again informed Choy about receiving a call from a Frank Ren of China Everbright to say that his company was being put forward by a director (later known to be Huen) of PWAM to be the replacement manager of GAPS.

272. Choy, Poh and Peter Wong were very upset and frustrated about that and told Huen that his background was questioned if he still kept doing such things behind their backs, and he could be certain that the deal would collapse.

273. Eventually Huen agreed to stop.

274. Peter Wong then had to send an email to HSBC to apologize and to clarify the confusion.

275. By letter dated 28 November 2005, PWFM and PWAM were informed that HSBC would not approve PWFM’s proposed retirement as manager of GAPS in favour of Oria.

276. On 29 November 2005, the shareholders of PWAM and PWFM sat down to discuss the matter.  By then PWAM was running out of cash and desperately trying to nominate another company to take the managerial rights of GAPS.  Several names including China Everbright were discussed and Huen wanted them to nominate China Everbright.

277. Choy later learned that Lawrence Yip and Annie Leung on behalf of Huen had gone to China Everbright to discuss the income sharing arrangement on 30 November 2005 without telling the others.

278. They then worked on the closing down and on 29 November 2005 with a view to closing PWAM’s business and reducing its liabilities, the staff of PWAM were informed that their employment would, at their option, be suspended with effect from 1 December 2005 or terminated by notice.

279. On 15 December 2005, PWAM transferred its brokerage and advisory business to Noble Apex Advisors Ltd at zero cost.

280. In January 2006, HSBC started to distribute the 4^th quarter management fees for 2005 for PWFM.  Huen agreed that payment of distributors’ partial trailer fee be paid to PWAM to cover its expenses and the balance be shared among Poh, Peter Wong and Choy.  The payment by HSBC was then stakeheld by Shea & Co and eventually transferred to the various parties.

281. By letter dated 16 January 2006, HSBC informed GAPS’ investors that two of the sub-funds would be terminated and stated that they had started the process of liquidating the underlying assets of each investment fund which may take some months with the intention to make both an interim and final distribution, with the interim distribution in March 2006 and the final distribution hopefully in August or September 2006.

282. On 30 January 2006, PWFM retired as the manager of GAPS and SHK Alternative Managers Ltd was appointed by HSBC as the replacement.  On the same day, HSBC issued another letter to its investors informing them that a member of SHK Finance Group would be appointed as the replacement manager of GAPS.

283. PWAM had no hope to recover any value and Huen was informed.  Huen felt sorry and agreed that all agreements would not be proceeded with except the agreement for the sale and purchase of the Properties.

284. After the failure of Oria to be the replacement manager of GAPS, at the request of Huen, they nominated China Everbright to be the proposed replacement manager.  Choy and the others believed China Everbright was not appointed because of its connection with Huen.

285. On 18 January 2006, Annie Leung sent an email to Choy and Poh calling for a shareholders meeting of PWAM to be held at the office at noon the following day to deal with the winding up of PWAM.

286. The 1^st cheque was not presented for payment on 25 January 2006.

287. On 27 January 2006, Annie Leung sent an email to Choy, Poh and Peter Wong stating that the most urgent matter is to chase up the receivables, settle outstanding liabilities and to wind up PWAM.

288. At a Board meeting of PWAM on 16 February 2006 convened to prepare for the cessation of business of PWAM, a number of resolutions were passed concerning the steps to be taken including PWAM could not apply for voluntary winding up until it had settled all its debts and the termination of all its staff on 28 February 2006 and that PWAM would surrender its licenses to SFC as soon as possible.

289. On 24 February 2006 PWAM closed its office.

290. Another meeting was held on 27 February 2006 to follow up the closing down matters

291. On 30 March 2006, it was resolved that PWAM be taken to have ceased business from 1 March 2006 and all clients have been duly notified; PWAM shall surrender all relevant licenses to SFC within the prescribed period; and at the request of PWAM, Poh ceases to be one of the ROs of PWAM.

292. On 23 March 2007, Huen signed in capacity of Chairman, the Audited Financial Statements of PWAM for the year ended 31 March 2006.

293. Huen also signed the letter to the auditors of PWAM confirming the write-off of HK$80,813,527.17 for the year ended 31 March 2006 as well as signing the audited report of PWAM for 2006 which confirmed the net asset value of PWAM to be HK$63,836,694.

294. After the S & P Agreement had been executed, Choy’s wife received many phone calls from property agents representing Huen to bring potential buyers to view the Properties.

295. In January 2006, Huen requested an extension of time for completion as he could not find a buyer.  By letters dated 11 January 2006, Shea & Co informed Choy’s solicitors that the parties had agreed that completion would be extended to 4 May 2006 and same was confirmed by Choy’s solicitors on 13 January 2006.

296. Huen’s solicitors requested again on 2 May 2006 for a further extension to 4 August 2006.

297. By letter of 10 March 2006, Choy’s solicitors had enquired from the mortgagee the amount of principal and interest payable on the discharge of the Properties calculated up to and including 6 May 2006.

298. Until April 2006, Huen did not raise any issue regarding the Shares Agreement or any of the cheques given by Choy to Huen.  But it makes no commercial sense for Choy to pay any part of the HK$40 million for Huen’s shares in PWAM given the circumstances stated.  Choy further believes, as advised, that the payment demanded by Huen are against legal principle.

299. On 13 April 2006, without prior notice or consent of Choy, Huen presented the 1^st Cheque for payment.  Huen’s solicitors then demanded payment for the 1^st Cheque by letter dated 26 April 2006.

300. On 25 April 2006, without prior notice or consent of Choy, Huen presented the 2^nd Cheque for payment but was dishonoured.  Huen’s solicitors demanded payment for the 2^nd Cheque by letter dated 13 May 2006.

301. After the 2^nd Cheque was dishnonoured, Huen commenced a series of litigation against Choy, later consolidated, being the present proceedings.

302. By letter dated 2 May 2006, Shea & Co requested from Choy’s solicitors a further extension for the completion date to 4 August 2006 but that all the terms of the S & P Agreement to remain unchanged.

303. By another letter dated 2^nd May 2006, Shea & Co stated to Choy’s solicitors that the purchaser was ready to complete the sale and purchase of the Properties on 4 May 2006 subject to the following:

(a)   The purchaser shall pay part of the purchase price by payment of the redemption money for discharge of the existing mortgage in favour of Standard Chartered Bank (Hong Kong) Ltd,

(b)   The balance of purchase price shall be held by the purchaser’s solicitors as stakeholders upon satisfaction of payment of the said HK$30 million (being the total sum of the 1^st Cheque, 2^nd Cheque and 3^rd Cheque) due by Choy to Huen; and

(c)   Save and except the aforesaid, all the terms of the S & P Agreement registered in the Land Registry by Memorial No 05113000270041 remain unchanged.

304. On 4 May 2006, Shea & Co by letter enclosed a draft undertaking reflecting the proposal that the balance of the purchase price was to be held by the purchaser’s solicitors as stakeholders.

305. By another letter dated 4 May 2006, Shea & Co asked Choy’s solicitor for instructions for the splitting of cheques.

306. The terms of payment set out in the letter of 2 May 2006 from Shea & Co and the draft undertaking received on 4 May 2006 constituted a substantial departure from the terms of the S & P Agreement, thus Raking refused to accept such departure of terms.

307. By letter dated 6 May 2006 Raking’s solicitors informed Shea & Co that the varied terms were not acceptable to Raking.

308. Two letters dated 15 and 20 May 2006 from Deacons to Huen’s solicitors explained that the Shares Agreement was invalid and unenforceable and that Huen was not entitled to present the cheques for payment or to pursue any action against Choy.  No response was received to those letters, instead Huen commenced HCA 1093 of 2006 against Choy on or about 22 May 2006.

309. By letter dated 26 May 2006, Raking’s solicitors put on record that the purchaser had wrongfully and in breach of the S & P Agreement refused or failed to complete and has thereby wrongfully repudiated the S & P Agreement.

310. By another letter of same date, Raking’s solicitors indicated that Raking accepted the purchaser’s repudiation and rescinded the S & P Agreement.

311. Shea & Co by letter dated 26 May 2006 opposed the repudiation and rescission of the agreement by Raking.

312. On 27 May 2006, Raking’s solicitors filed a Memorandum of Rescission with the Land Registry against the Properties.

313. Notwithstanding the above, on or about 25 July 2006, and without prior notice or consent of Choy, Huen presented the 3^rd Cheque for payment but which was not honoured for reasons given above.

314. For the same reasons stated above, Huen should return the first payment of HK$10 million under the Shares Agreement to Choy as Huen has been unfairly enriched by it.

ASSESSMENT

315. In this case, in so far as the disputed facts are concerned, the evidence of Huen and Annie Leung on the one hand and the evidence of Choy are diametrically opposed.

316. Credibility of the witnesses are therefore crucial in coming to a decision and findings on the disputed facts in this case.

317. Dealing first with the evidence of Huen.  Huen was described by Choy as being the brother of the fourth wife of Stanley Ho and that Huen has a background.  However, Choy has never really specified what that background was, save that Huen was alleged by Choy to have made “veiled threats” against Choy and Choy’s family members at one of the meetings in the Macau Jockey Club and that there were a number of ‘unfriendly males’ posted outside the door.

318. There is also some suggestion in Choy’s evidence that Huen was involved in money-laundering, but there is no evidence to support that allegation.

319. Leading Counsel for Choy has also in his submission, referred to a number of occasions when, he says, Huen’s evidence has been shown up to be inaccurate, unreliable  and also exaggerated.

320. In this respect, counsel pointed to firstly, Huen insisted that a board meeting was held on 15 October, but ultimately, Huen had to concede that the Board meeting took place on 17 and not 15 October as initially said by Huen.

321. Secondly, it was submitted that Huen had insisted that Choy remained silent at that board meeting when confronted with his alleged wrongdoings by Huen.  This is shown not to be the case by the minutes (recorded by Annie Leung) of a meeting held between PWAM and SFC on 19 October 2005 where it was stated that Choy had in fact said words to the effect that he had done nothing to undermine the interests of the shareholders of PWAM.

322. Thirdly, Huen had said in his witness statement (adopted as evidence) that at a meeting with SFC on 21 October 2005,  HSBC had sent representatives to that meeting but this was not borne out by the minutes of that meeting.  Moreover, Huen admitted in cross examination that he had not cross checked what he said in his witness statement against the documents which showed Huen to be careless.

323. Fourthly, it was said that Huen was prone to embellish or exaggerate in that Huen had said that when Choy offered the Properties as security, Choy “even produced his title deeds” of the Properties.  This, counsel submitted, could not have been possible since the Properties had been mortgaged and the title deeds would have been with the bank.

324. As for Annie Leung’s evidence, it was submitted by Leading Counsel for Choy, that her recollection and record of events were not reliable.

325. Firstly, Annie Leung made the same mistake as did Huen as to the date of the board meeting being on 15 October when it was actually on 17 October 2005.  Under cross examination Annie Leung, when shown a letter dated 18 October from Shea & Co which referred to “a board meeting held yesterday at Shun Tak Centre” had to concede that the board meeting was actually on 17 and not 15 October.  That was further borne out by Choy’s passport showing 17 October to be the date Choy had entered Korea.

326. Annie Leung also made a mistake in the date of the minutes prepared by her being in respect of a meeting between PWAM, PWFM and HSBC, said to be on the 20 October 2005 when in fact that meeting took place on 24 October 2005.  That was clear from the contents of the minutes that the meeting could not have been on 20 October.  Ultimately, Annie Leung accepted in cross examination as to the mistake made by her in the date.

327. Thirdly, it was said that Annie Leung’s memory was not entirely accurate when she asserted that Choy had resigned from being the RO of PWAM but had remained its director.  Only when she was confronted with the minutes of a meeting of PWAM  held on 19 October 2005 chaired by Huen and which minuted that Choy’s resignation was accepted that Annie Leung eventually accepted that Choy did cease to be a director after Choy’s resignation.

328. Lastly, it was submitted that Annie Leung said that she could not have made the Representations (of the withdrawal of the Form 5) to Choy because she was not well-versed with SFC regulations.  But on her own evidence, Poh had shown her the relevant parts of the SFC Code relating to RO’s which states that a Form 5 had to be submitted within 7 days.  It would therefore have been perfectly understandable if both Huen and Annie Leung had thought (albeit erroneously) that if the Form 5 was to be submitted within 7 days, it could be withdrawn within 7 days as well.

329. In assessing the evidence of Huen and Annie Leung, I accept there were some inconsistencies and contradictions in their evidence.  However those were of minor matters or details, such as whether the board meeting was on 15 or 17 October and whether HSBC officers had taken part in the meeting with SFC on 21 October as well as the mistakes in dates as contained in the minutes prepared by Annie Leung. These are relatively minor matters which cast little or no bearing on the main issues in dispute.  What they show are that there are memory lapses as to minor details on the part of Huen and Annie Leung.  After all those matters on which evidence was given took place in 2005.

330. More importantly, these inaccuracies in the evidence of Huen and Annie Leung do not point to any deliberate untruths by them.

331. As for the point taken in respect of Annie Leung’s evidence in relation to her being unfamiliar with SFC Regulations, that point made by Leading Counsel for Choy is no more than a suggestion for an inference to be drawn by the court.  Namely, because Annie Leung had been shown the SFC Code by Poh, counsel suggests that I should draw the inference that therefore she had erroneously thought that the Form 5 could be withdrawn within the same 7 days and so made that Representations to Choy.

332. This is not an inference that I am prepared to make, nor is it necessary to make such inference when there are direct evidence from the parties as to whether the Representations had been made.

333. I am not in the least inclined to come to the view that Huen or Annie Leung had been in any way untruthful to the court in giving evidence in this matter, and that at best, they may not have been fully accurate in the less important minor details of this case, especially when it comes to dates due to their memories being affected by the long lapse of time between the events and the time they gave evidence or made their witness statements.

334. Moreover, Annie Leung being a solicitor and an officer of the court, I am firmly of the view that she was doing her best to tell the truth of what had happened.  Her evidence as to what happened (and likewise that of Huen also) are supported largely by the documentary evidence in this case, and which I find to be a much more reliable test as to credibility of the witnesses involved.

335. I turn now to deal with the evidence of Choy.

336. The crux of Choy’s defence to the Shares Agreement is the making of the Representations by Huen and Annie Leung.

337. There is no dispute that Choy was familiar with the SFC rules and regulations, and far more than Huen was, and probably even more familiar than Annie Leung, who was a conveyancing solicitor.

338. It is also not in dispute that all concerned well knew that whether Choy can or cannot be reinstated as the RO of PWAM was a matter which was ultimately in the hands of the SFC, and the SFC alone.

339. Given the circumstances of the case, not only is it inherently improbable but also inconceivable for a person in the position of Huen and Annie Leung to have made the Representations which Choy says were made by them.

340. Any discussion there may have been about Choy’s intention of wanting to be reinstated as the RO of PWAM, Huen could have done no more than to say that he had no objection to that, but as all concerned must have known, that must be a matter for the SFC to decide at the end of the day.  This was clearly borne out when Huen was cross-examined as follows:

“Q. When you agreed to sell your shares to Christopher Choy, in your mind you thought that Christopher Choy could be reinstated as the Responsible Officer of PWAM?

A. Because I had already sold my shares, whether or not he could become the Responsible Officer again was not my concern. Whether he or someone else would be the Responsible Officer was none of my concern.

Q. I’m talking about the time when you were discussing with Choy, not after you had sold your shares.

A. There was no discussion on this.

Q. Did Christopher Choy say he had to be re-instated as Responsible Officer?

A. He said he wanted to be the Responsible Officer again. I said that was not my business.

Q. You said to Christopher Choy there would be no problem for him to be the Responsible Officer.

A.  I did not.”

341. For Choy to say that the Representations were made by Huen and/or Annie Leung is a quantum leap with absolutely no basis.

342. Secondly, there can be no question but that there was a dispute between the parties which led to the making and execution of the Shares Agreement.  Putting aside the cause of that dispute, just the fact that there was a dispute would have put both parties on alert and to be careful as to how they were to resolve their differences.

343. It is also Choy’s case that his reinstatement as the RO of PWAM was absolutely crucial to his agreeing to purchase Huen’s shares in PWAM and in cross examination, Choy referred to it as a “pre‑investment condition”.

344. Therefore given such circumstances, it is again inconceivable that Choy would have signed the Shares Agreement which contained not a word to the effect that the agreement was conditional upon his reinstatement as the RO of PWAM, nor did Choy await the outcome of the decision by the SFC to see whether he would be reinstated as RO. Neither did Choy ask for such a condition to be in writing and contained in the Shares Agreement, the more so when it is Choy’s case that both Huen and Annie Leung were prepared to and did make the Representations orally.

345. The explanation given by Choy for not so doing was that ‘veiled threats’ were made to him and his family by Huen.  That evidence of Choy is equally unbelievable for if, as Choy says, Huen and Annie Leung were ready to give the Representations orally to Choy, why should there be any difficulty for same to be put in writing and made part of the Shares Agreement, without any need of veiled threats.

346. I am also not disposed to accepting the evidence of Choy as to ‘veiled threats’ and ‘unfriendly males’ standing outside the room.  In so saying Choy stops short of any direct evidence of threats from Huen but that Choy reads into Huen’s words asking about the wellbeing of his family as being a veiled threats.  That is very subjective.  As to the ‘unfriendly males’ outside the door, Choy’s evidence does not go so far as to link those unfriendly males with Huen but merely says there were unfriendly males outside the door.

347. Choy also sought to place reliance on the organizational chart in an attempt to show that the Representations were made.  I am of the view that the organizational chart can have no such effect.  At best, the organizational chart can show that Huen (and/or others in PWAM) had no objection to Choy being reinstated as a RO, but the final decision for that would rest with the SFC and not Huen or anyone else.

348. The only conclusion that can come from it is that the Representations were never made to Choy and was never a condition to Choy’s purchase of Huen’s shares in PWAM as was the evidence of Huen and Annie Leung.  I have no difficulty accepting that evidence from Huen and Annie Leung.

349. Coming now to deal with Choy’s allegation that there was an oral agreement to cancel the Shares Agreement made on 3 November 2005 and which was later confirmed in a phone conversation he had with Huen in mid-December 2005, I am unable to accept that evidence of Choy for the following reasons:

(i)  Choy did not see fit to have such cancellation agreement put in written form or even on email so as to evidence or record same;

(ii)  Such an oral agreement to cancel the Shares Agreement is inconsistent with the Recital in the Supplemental Agreement signed by Choy on 4 November 2005 which makes express reference to the Shares Agreement.  When cross examined on this, initially Choy said he did not ask Annie Leung to revise the Supplemental Agreement, then later, Choy changed his testimony to say that he did tell Annie Leung that the Supplemental Agreement should be changed.  Still later, Choy put forward an in-between explanation to try to explain away the inconsistency in his testimony;

(iii)  No mention was made in the letter from Deacons (Choy’s solicitors) dated 15 May 2006 about such oral cancellation on 3 November 2006 although it did refer to the cancellation in December 2005;

(iv)  No demand was made by Choy for the return of the 105,779.81 units of Global Arbitrage Strategy Fund Plus A (USD), at least not until Choy’s counterclaim was amended. In cross examination Choy admitted that he did not make such demand and the explanation he gave was that the transfer was made by PWFM and not by him personally.  That is a wholly unsatisfactory explanation since it must have been Choy who had procured PWFM to transfer those units to Huen in satisfaction of the first tranche payment of HK$10 million under the Shares Agreement, a personal liability of Choy.

350. The evidence of Choy in relation to the Representations and the alleged cancellation of the Shares Agreement is inconsistent with and goes against the grain of the documentary evidence, namely the Shares Agreement, the Memorandum and the Supplemental Agreement.

351. Choy also gave evidence that there was an oral agreement between him and Huen that the S & P Agreement would be carried out as a ‘normal’ sale and purchase, and that because it was to be a normal sale and purchase, there was a receipt of deposit clause.  Choy’s evidence was that he had signed to acknowledge the Receipt of the deposit even though Huen had said Huen had forgotten to bring along a cheque for the payment of the deposit.

352. That evidence is in direct contradiction to the evidence given by Huen and Annie Leung whose evidence was that the S & P Agreement was entered into as security for Choy’s liability under the Shares Agreement and preceded by the Memorandum and Supplemental Agreement.  It is Huen’s case, that as such, there was no question of payment of any deposit (since the consideration for the sale would be set off against any payment in default by Choy).

353. Annie Leung gave evidence that she had included the Receipt of Deposit clause in the S & P Agreement because that clause was on the template, and although that Receipt of Deposit clause was signed by Choy, in fact no such deposit had ever been paid by Huen.

354. It was argued by Leading Counsel for Choy that the existence of the Receipt of Deposit clause in the S & P Agreement showed that there was an oral agreement between Choy and Huen to carry out the sale and purchase of the Properties pursuant to the S & P Agreement as a normal sale.

355. In my mind, whether or not the existence of the Deposit Receipt clause showed that there was an oral agreement to carry out the S & P Agreement as a normal sale and purchase cuts both ways for the following reasons.

356. If it was to be a normal sale and purchase, and Huen had forgotten to bring along his cheque for the payment of the deposit, it is inconceivable that Choy would have signed the receipt clause to acknowledge payment of the deposit given the climate existing at the time which came about from their dispute over PWAM.  Choy could just as easily have said that he would sign on the Deposit Receipt clause as and when the deposit was paid by Huen.

357. Again if it was the case that the sale and purchase of the Properties were to be carried out as a normal sale and purchase under the S & P Agreement, and even if Huen had forgotten to bring along a cheque for the payment of deposit but nevertheless, Choy had still signed the Receipt clause for the deposit, it is also inconceivable that for so many months thereafter, no attempt had been made by Choy to chase for the payment of the deposit from Huen, at least not until the matter was raised in the letter from Choy’s solicitors dated 11 April 2006, and even then, that letter was not demanding the ‘late’ payment of the deposit amount, but merely asking for evidence of such payment.

358. I therefore have no difficulty in accepting all the evidence of Huen and Annie Leung on this issue and rejecting the evidence of Choy.  In so saying, I also accept the evidence of Annie Leung, including her evidence in cross examination when she agreed that there was no need to have the Receipt of Deposit clause in the S & P Agreement when that agreement was intended to be security for Choy’s liability under the Shares Agreement.

359. It was also argued by Leading Counsel for Choy that the fixing of a completion date (initially for 4 February 2006) and it’s postponement to 4 May 2006 also point to the fact that the sale and purchase under the S & P Agreement was to be carried out as a normal sale and purchase of the Properties.

360. I do not accept that argument.

361. The S & P Agreement does not stand alone.  It was preceded by the Memorandum and the Supplemental Agreement.  When looked at together, it was made expressly clear in all those documents that the S & P Agreement for the sale and purchase of the Properties was to be security for Choy’s liability under the Shares Agreement.  Nothing could have been clearer.

362. The solicitors for Choy chose to use the form of the S & P Agreement which was on their template. As such the S & P Agreement (which would normally be used for the run of the mill sale and purchase of properties) would necessarily refer to a completion date and such a date would have to be fixed on the conveyancing document before its execution.  Therefore the fixing of a completion date and its later postponement, although both the initial date and the postponed date bears little or no resemblance to the respective dates of the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque, does not per se show that the S & P Agreement was to be carried out as a normal sale and purchase of the Properties.

363. Another reason which emerged in cross examination of Annie Leung was that the S & P Agreement was used instead of the usual guarantee or security because the Properties had already been mortgaged to SCB for some $16 million and if the documentation was done in the usual form of utilizing the Properties as security or guarantee, consent of the mortgagee may will have to be obtained.  I accept that evidence of Annie Leung as being her reason for proceeding the matter in the way that it was.

364. After all, the Memorandum and the Supplemental Agreement being in writing and preceding the S & P Agreement, if there was any change of stance come to by Choy and Huen to the effect that the S & P Agreement should be carried out as a normal sale and purchase of the Properties (and not as agreed by them in the Memorandum and Supplemental Agreement) one would expect the parties to have executed proper documentation in writing to that effect.  Nothing of that sort was done.

365. Lastly, I also do not accept the evidence of Choy that after Huen and Choy had agreed to the cancellation of the Shares Agreement, Choy had promised to pay Huen HK$40 million  (coincidentally the same amount as the Shares Agreement) if Huen would refrain from interfering in Oria being put forward as a replacement manager.  Why should Choy promise such payment personally when Huen’s interference was a matter which affected all the shareholders of PWAM.  It also makes no commercial sense in that if the Shares Agreement had been cancelled and Huen’s shares in PWAM was to be retained by Huen, why should Choy agree to pay Huen the same amount of money originally intended  as the consideration for taking over Huen’s shaes in PWAM.  After all, Huen’s non-interference, if it were to benefit PWAM, would benefit both Choy and Huen on Choy’s case that the Shares Agreement had been cancelled.

366. I therefore find that this evidence from Choy concerning Oria, was another piece of evidence fabricated by Choy in an attempt to explain away the security or guarantee referred to in the Memorandum, but which in Choy’s case could not be his liability under the Shares Agreement.

367. I therefore do not accept Choy’s evidence on all the main issues in this case and prefer the evidence given by Huen and Annie Leung on all those main issues.

368. The only conclusion I am left with is that Choy had given deliberately untruthful evidence in all the main issues in this matter in an attempt to wriggle out of his liability under the Shares Agreement and also Raking’s liability by way of security or guarantee under the Security & Set-off Agreement, the Memorandum, the Supplemental Agreement and the S & P Agreement.

FINDING OF FACTS

369. For the reasons given above, I make the following finding of facts on the disputed matters.

370. There was no Representations made by Huen and/or Annie Leung to Choy as alleged by Choy to the effect that the Form 5 notice to the SFC could be validly withdrawn within 7 days of the date of Choy’s resignation as RO and that there would be no problem for Choy to resuming his former position as a RO of PWAM so as to enable PWAM to carry on business as before.

371. I further find as a fact that there was no oral agreement between Choy and Huen made on 3 November 2005 not to proceed with or to cancel the Shares Agreement, nor was any such oral agreement confirmed between them in a phone conversation which took place in mid‑December 2005.

372. Accordingly, I find that the Shares Agreement had not been cancelled between Huen and Choy.

373. I further find that the Memorandum and Supplemental Agreement were as a result of Choy agreeing to put forward the Properties as security or by way of guarantee for the liability of Choy under the Shares Agreement.

374. I accept Annie Leung’s evidence and find that when the Supplemental Agreement was signed by Choy, at that time it was not signed by Huen as he had left before the Supplemental Agreement was signed, but that when the Supplemental Agreement was later signed by Huen, Annie Leung had given a copy of the signed Supplemental Agreement to Choy.

375. I also find that Choy and Huen, having entered into the Supplemental Agreement, Huen was asked by Choy (and also Poh) to continue as a director of PWAM in order to show outsiders that all was well within PWAM and that it was pursuant to such request of Choy and Poh that Huen continued as a director of PWAM.  As such there was a variation to and Huen was not in breach of the Supplemental Agreement.

376. I also find that there was no oral agreement between Choy and Huen whereby they agreed to proceed with the sale and purchase of the Properties under the S & P Agreement as a normal sale and purchase transaction but that at all times it was well understood that the Properties, the subject matter of the S & P Agreement was to be used as security or guarantee for the liability of Choy under the Shares Agreement, as agreed by them under the Security & Set-off Agreement.

377. I accept Huen’s evidence that the 1^st Cheque was not presented for payment on due date because Choy had asked for an extension of time for the 1^st Cheque to be presented by Huen, which Huen agreed to.

378. I further find that there was no repudiation by Huen of the S & P Agreement and that Choy was not entitled to rescind same.

DECISION

379. The defences of misrepresentation, implied condition and estoppel by convention having been formally abandoned by Leading Counsel for Choy in his closing submission, it will not be necessary for me to deal with those defences in this judgment.

380. Given the finding of facts made above, there is therefore no evidential basis for the defence of collateral agreement raised by Choy and that defence accordingly cannot succeed.

381. As for the defence of frustration, from the facts found, there is also no basis to say that the main or primary purpose of the Shares Agreement was for Choy to resume his position as RO of PWAM and in the circumstances, the defence of frustration also fails.

382. Having accepted the plaintiffs’ case in its entirety on the facts, Choy is liable to Huen for the dishonor of the 1^st Cheque, the 2^nd Cheque and the 3^rd Cheque in the total amount of HK$30 million alternatively, the said sum of HK$30 million as being a debt under the Shares Agreement.

383. Accoridngly, there will be judgment to Huen for HK$30 million as against Choy with interest at 1% above prime from the date of the Writ until judgment and thereafter at judgment rate.

384. In the alternative, being alternative to the judgment sum of HK$30 million above, an order for specific performance by Raking of the S & P Agreement by assigning the Properties free from encumbrances to China Gain and to set off the set consideration of HK$38.4 million against the said judgment sum of HK$30 together with interest awarded thereon.

385. The consolidated counterclaim is dismissed.

COSTS

386. There will be a cost order nisi that:

(a)   the costs of Huen and China Gain in their consolidated actions be to Huen and China Gain to be paid by Choy and Raking and to be taxed if not agreed;

(b)   The costs of the Huen and China Gain in defending the consolidated counterclaim be paid by the Choy and Raking to Huen and China Gain to be taxed if not agreed.