AU YEUNG KWAN v. LEE LAM

HCA 2464/2014

[2020] HKCFI 3024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2464 OF 2014

________________________

(By Original Action)
________________________

(By Counterclaim)
________________________

AND

HCA 2473/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2473 OF 2014

________________________

________________________

________________________

J U D G M E N T

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1.  This is the trial of 2 actions commenced by Mr Au Yeung Kwan (歐陽坤) (“AYK”) and Mr Lee Lam (李林) (“LL”) against each other. 

2.  In HCA 2464/2014, AYK seeks to enforce the terms of a written agreement signed by both of them on 11 July 2014 (“Agreement”) or, alternatively, repayment of the $27,765,157.5 paid by him (and his 4 friends) to LL for investment purpose. 

3.  In HCA 2473/2014, LL against AYK, Mr Yau Sai Mo (丘世武) (“Yau”), New Century Laundry Limited (新世紀洗衣有限公司) (“New Century”), 7000 Limited and 5 other companies under the control of AYK namely, 5000 Limited, 1222 Limited, 166 Limited, 863 Limited and 73 Limited (collectively “5 Number Companies”) for, inter alia, (1) declarations that the Agreement “has never arisen” or has already come to an end or is no longer binding upon the parties; (2) a declaration that AYK holds the 5 Number Companies on “constructive trust” for LL; (3) damages against Yau for negligence and breach of fiduciary duties; and (4) other extensive declarations and relief to the effect that LL is the beneficial owner of (i) the “Raton Property” (as defined in §20 below), (ii) 75% of the issued shares in New Century; (iii) the “TMIC Properties” (as defined in §19 below), and (iv) the “6 Pahsang Units” (as defined in §25 below). 

4.  The 2 actions were consolidated by the order dated 9 November 2015 with HCA 2464/2014 being the lead action.  AYK’s case is pleaded in the Amended Statement of Claim filed on 23 March 2018 (“SOC”) and Amended Reply and Defence to Counterclaim (“R&DC”) filed on 1 June 2018.  LL’s case is pleaded in his Re-Amended Defence and Counterclaim filed on 27 April 2018 (“D&CC”). 

5.  New Century and 7000 Limited have not been represented or participated at the trial.  Ms Catherine Wong and Mr Peter Chiu appear on behalf of AYK, Yau and the 5 Number Companies, while Mr Bache Sit appears on behalf of LL. 

6.  Although in the SOC, the pleader does not claim specific performance as a relief, it is clear from the order sought in §§(1) to (3) of the prayer that AYK is seeking specific performance of the Agreement.  Ms Wong in her opening submissions makes clear that AYK seeks, as a primary relief, specific performance of the Agreement.  Mr Sit in his opening submissions also deals with the claim on the basis that AYK seeks specific performance of the Agreement as his primary relief.   

7.  Pursuant to this Court’s directions, the parties have filed Agreed Statement of Facts and agreed list of issues (“Agreed Issues”). 

A.  UNDISPUTED FACTS  

8.  The following facts and matters are based on the Agreed Statement of Facts or facts which are not in dispute. 

A1.   Dramatis personae

9.  AYK engages in restaurant and property investment businesses.  LL engages in laundry services and restaurants businesses, and has made substantial investments in real properties in Hong Kong.  LL’s wife is Ms Yau Chiu Sheung (游肖嫦) (“Mrs Lee”).

10.  AYK and LL have known each other since 1990.  LL regularly invested in real properties jointly with his friends and was considered a leader in that circle.  AYK was a member of that circle.  The circle of friends including AYK would pool their resources together and made investments jointly.  They would hold the real properties acquired on behalf of each other. 

11.  In early 2013, AYK and LL began to cooperate in making investments in real properties and restaurant businesses and their contact became more frequent.

12.  Apart from investing his own monies, AYK introduced his friends to LL, who are Au Yeung Ka Yee (歐陽家宜) (“Ka Yee”), Ng Kam Ming (伍金銘) (“Ng”), Yang Mengsu (楊夢甦) (“Yang”) and Ngan Yim Man (顏炎文) (“Ngan”) (collectively 4 Friends”), and they invested in LL’s business. 

13.  Yau was (and still is) employed by Bentleys C.P.A. Co Limited (班利仕會計師事務所有限公司) (“Bentleys”) as audit manager.  He has known AYK for over 20 years and has been handling the accounting affairs of his companies.

14.  Law Wai Kong (羅偉光) (“Law”) is a long-time friend and business partner of LL.  Since 2002, Law has been investing in Chinese restaurants together with LL.  The other major investor is Kwok Luk Ming (郭綠明) (“Kwok”).  Law has acted as general manager of the chain of restaurants in which he had invested.  LL entrusted all accounting and financial matters relating to his businesses and investments to Law, and Law would act on the instructions given by LL from time to time. 

15.  Leung Kwok Ming (梁國明) (“Leung”) has known LL for over 10 years.  He had invested in the restaurant business operated by LL and, through such investment, came to know AYK. 

A2.  Investments made by AYK and 4 Friends   

16.  AYK paid an aggregate sum of $22,835,157.50 for the purpose of investing in 7 real properties or restaurants described in §§17-23 below (collectively “AYK Investments”).  There is a dispute as to (1) whether the parties agreed to convert the net amount of $12,000,000 paid by AYK in respect of New Century into a loan; and (2) the amount invested in “Raton Property”.  Subject to that, AYK and LL confirm, during cross-examination, that by the time Law finalised the document entitled “歐陽坤先生 – 借款予李林及入股於各公司” dated 25 August 2014 (“Investment Schedule”), they agreed to its contents.  Accordingly, unless otherwise stated, where I refer to the amount paid by AYK in respect of a specific investment, it is based on the descriptions in the Investment Schedule.   

17.  First, 10/F, Viking Technology and Business Centre (維京科技商業中心) (“Viking Properties”) for which AYK paid an aggregate sum of $1,950,000 by way of 3 cheques dated 18 January 2013 ($100,000), 25 January 2013 ($170,000) and 21 March 2013 ($1,680,000). 

18.  Second, Workshops A, B and E on 10/F, Block 2 and carpark nos 7 and 27 on G/F of Kwai Tak Industrial Centre (葵德工業中心), Nos 15-33 Kwai Tak Street, Kwai Chung (collectively “Kwai Tak Properties”) in that:

(1)  Workshops A, B and carpark no. 7 were acquired by 2333 Limited at $15,130,000.  Workshop E and car park no. 27 were acquired by Comforthome Group Limited (嘉翔集團有限公司) (“Comforthome”) at $7,060,000. 

(2)  AYK paid an aggregate sum of $4,625,157.50 by way of 4 cheques dated 1 March 2013 ($450,000 and $350,000), 15 March 2013 ($210,000) and 3 May 2013 ($3,693,407.50) less $78,250 repaid to AYK on 3 June 2013.

(3)  Apart from AYK, LL, Kong Ming Hei (江明熙) (“Kong”) and Chow Wai Keung (周偉強) (“Chow”) also invested in Kwai Tak Properties.   

(4)  The relevant sub-sale and purchase agreements were entered into with a confirmor on 4 January 2013 and the assignments were executed on 6 May 2013.

(5)  Comforthhome was incorporated on 17 April 2002. As at 17 April 2015, Chow and Cheung Ka Lai were its only directors and shareholders.

(6)  2333 Limited was incorporated on 18 October 2012. Since 18 December 2012 and 18 October 2014, LL has been its sole director and sole shareholder respectively.

(7)  Comforthome transferred Workshop E and carpark no. 27 to 2333 Limited pursuant to an assignment dated 3 June 2016.  Since then, 2333 Limited has been the sole registered owner of Kwai Tak Properties.

19.  Third, Units A3, A4, C2 and C4 on 12/F of Tuen Mun Industrial Centre, No 2 San Ping Circuit, Tuen Mun (collectively “TMIC Properties”) in that:

(1)  AYK paid an aggregate sum of $12,000,000 by way of 5 cheques dated 20 April 2013 ($5,000,000), 29 April 2013 ($3,000,000), 13 May 2013 ($1,000,000 and $1,000,000) and 4 June 2013 ($5,000,000), of which $3,000,000 repaid to AYK on 12 September 2013 ($1,000,000) and 8 March 2014 ($2,000,000). 

(2)  TMIC properties were acquired for $20,800,000 through acquisition of all the issued shares in New Century pursuant to a preliminary agreement for sale and purchase of the shares dated 25 April 2013 and a formal agreement dated 20 June 2013. 

(3)  Upon completion of the acquisition, the shares in New Century were held by AYK and Kwok as to 50% each and they were its only directors.

(4)  In August 2013, a first legal charge was created over the TMIC Properties as security for a $14 million loan advanced by Lei Shing Hong Credit Limited (“LSH”) to New Century (“LSH Loan”), with AYK and Kwok acted as guarantors.  The Loan was borrowed for LL’s personal purpose and was repaid with the monies deposited by LL at New Century’s bank account with Bank of China  until he was removed as an authorised signatory in September 2014.  Thereafter, LL repaid the loan directly to LSH.

(5)  On 30 September 2013 Kwok resigned as director of New Century and transferred all his shares to AYK for $1.  Since then, AYK has been the sole director and shareholder of New Century.

20.  Fourth, Unit 6 on 2/F of Raton Industrial Building (利通工業大廈), No 4 Kin Wong Street, Tuen Mun (“Raton Property”) in that:

(1)  It was acquired in the name of 7000 Limited for $4,200,000 pursuant to a provisional sale and purchase agreement dated 21 February 2013 and an assignment dated 10 July 2013, both signed by AYK on behalf of 7000 Limited.  There is an issue as to who paid the down payment and other costs associated with the purchase.

(2)  The acquisition was financed by a $1,260,000 loan advanced by Dah Sing Bank, and was secured by a mortgage over Raton Property.  Since at least August 2014 AYK has been making monthly repayment of the loan. 

(3)  7000 Limited was incorporated on 6 August 2012. On 18 December 2012, Mrs Lee became the sole director and shareholder of 7000 Limited (holding 1 share).

(4)  In April 2013, Mrs Lee transferred her 1 share in 7000 Limited to AYK.  She resigned as director on 21 April 2013 and was replaced by AYK on the same day.  Since then AYK has been the sole director and shareholder of 7000 Limited.

21.  Fifth, Nice Inn Restaurant in Ping Shek Estate (坪石邨怡軒海鮮酒家) (“Ping Shek Nice Inn”) for which AYK paid an aggregate sum of $2,960,000 by way of 3 cheques dated 17 June 2013 ($640,000 and $2,000,000) and 11 September 2013 ($320,000). 

22.  Sixth, Good Fortune Seafood Restaurant (福囍酒家) which the parties later referred to as Nice Inn Restaurant in Chai Wan (柴灣怡軒海鮮酒家) (“Chai Wan Nice Inn”) for which AYK paid an aggregate sum of $900,000 by way of 2 cheques dated 26 April 2013 ($500,000) and 19 September 2013 ($400,000). 

23.  Seventh, Nice Garden Restaurant (怡苑海鮮酒家) (“Nice Garden”) and Golden Fortune Restaurant (金福酒家) for which AYK invested $400,000 by way of 2 cheques dated 26 April 2013 ($300,000) and 16 September 2013 ($100,000). 

24.  Through the introduction of AYK, on 20 March 2013, the 4 Friends invested an aggregate sum of $4,930,000 in the Viking Properties, Nice Garden, Ping Shek Nice Inn and Chai Wan Nice Inn (collectively “4 Friends Investments”) as follows:

Name	Investment	Amount
Ka Yee	Viking Properties	$1,650,000
Ka Yee	Nice Garden	$200,000
Ka Yee	Chai Wan Nice Inn	$200,000
Ka Yee	Ping Shek Nice Inn	$320,000
Yang	Ping Shek Nice Inn	$1,280,000
Ngan	Ping Shek Nice Inn	$960,000
Ng	Ping Shek Nice Inn	$320,000

A3.  LL’s investment in 6 Pahsang Units

25.  In January and February 2013, LL acquired Unit A2 on 1/F, Units A, B, C and D on 13/F and Unit B on 17/F of Pahsang Industrial Building (百勝工業大廈), No 16 San On Street, Tuen Mun (collectively “6 Pahsang Units”) in that:

(1)  On 6 August 2012, LL became the sole shareholder of the 5 Number Companies and was their director. 

(2)  Through the 5 Number Companies, LL acquired the 6 Pahsang Units as follows:

Unit	Date of Assignment	Registered Owner	Consideration
13A	16/1/2013	1222 Limited	$2,420,000
13B	16/1/2013	166 Limited	$2,420,000
13C	16/1/2013	863 Limited	$2,280,000
13D	16/1/2013	73 Limited	$2,260,000
1A2	22/1/2013	5000 Limited	$5,450,000
17B	28/2/2013	5000 Limited	$3,000,000
Total			$17,830,000

(3)  According to LL, 50% of the consideration was financed by bank loans, which were secured by mortgages over the 6 Pahsang Units.

(4)  Mrs Lee was appointed as additional director of the 5 Number Companies on 31 March 2013.

(5)  On 27 August 2014, AYK became the sole shareholder and director of the 5 Number Companies. 

A4.  Meeting on 11 July 2014 and the Agreement

26.  In the last quarter of 2013, the relationship between AYK and LL turned sour.  In December 2013, AYK indicated to LL that he wished to withdraw all his investments and they began to negotiate on how to divide their investments.

27.  On 11 July 2014, AYK and LL met in a VIP room at a spa in Shenzhen together with Yau, Law, Kwok, Leung and Leung Chi Kwan (梁志坤) (“Meeting”).  The Meeting was tape-recorded by AYK and the contents of the transcripts are indisputable. 

28.  At the request of LL, Yau wrote down the points and emphasised that a “大綱” (framework) would be sufficient.  In respect of each point, there were discussions between LL and AYK with comments made by Kwok, Law, Leung and Leung Chi Kwan.  As and when LL and AYK agreed on a point, LL instructed Yau to write it down.  The points agreed were:  

(1)  Kwai Tak Properties would be transferred to AYK;

(2)  7000 Limited and hence Raton Property would be transferred back to LL;

(3)  New Century’s shares would be transferred from AYK to LL[1] ;

(4)  the amounts invested by the 4 Friends and AYK in the restaurant business would be purchased by LL, and LL would pay for such purchase by transferring sufficient number of units at Pahsang to AYK at the agreed price of $1,500 psf (inclusive of stamp duty), to be chosen by AYK[2].  For this purpose, LL would transfer the shares in the 5 Number Companies to AYK[3].  If there is a surplus, it would be applied towards the earlier items (若果有剩低嘅呢，就彌補以上不足嘅款項)[4] ; and

(5)  the cost of removing one electric meter at 1/F and two electric meters at 13/F of Pahsang would be borne by AYK[5].

29.  After writing down the 5 points, at the request of LL, Yau read out what he had written and LL confirmed that they were correct[6].  LL then said he would return the deposits collected from the tenants of the Pahsang units to AYK, and AYK agreed that such deposits would be dealt with as part of the reconciliation (對數) process. If there was still an outstanding amount after reconciliation, LL would pay AYK $100,000 a month and cheques would be issued for such purpose.  LL said if AYK had no problem, the matters agreed could not be changed.  LL and AYK then signed as parties and the others present signed as witnesses[7].

30.  The Agreement stated as follows:

“1.  葵德10/F., 3個單連兩個車位轉給Au Yeung Kwan 歐陽坤先生。

    2.  7000 有限公司(持有利通大厦物業)轉回給李林先生。

    3.  新世紀洗衣廠有限公司本來由歐陽坤先生持有所有股份，現轉回給李林先生。

    4.  歐陽坤及他朋友的股份轉給李林；李林用百勝工業大廈1/F (1單位)，13/F (4個單位)，17/F (1單位) 作價1,500 / 呎包括 (Stamp Duty) 作對數酒樓的股份；如有餘款再作以上之不足之數。

    [5][8].  1/F, (1電錶)、13/F (2電錶) 由Au Yeung Kwan 負責清拆費用。

1.  (約) 清拆費 $148,000左右

2.  電錶1/F., 1個

          13/F.,  2個

以上各項雙方同意並簽名作實

(sd)  (sd)

_________________  __________________

Au Yeung Kwan          李林

見証：

丘世武 (Sd)

羅偉光 (Sd)

梁國明 (Sd)

梁志坤 (Sd)

郭綠明 (Sd)

Date: 11 July 2014”

Translation

1.  Kwai Tak 10/F, 3 flats including two parking spaces transferred to Au Yeung Kwan, Mr. Au Yeung Kwan.

2.  7000 Limited (holds properties of Li Tung Industrial Building) transferred back to Mr. Lee Lam.

3.  The shares of New Century Laundry Limited originally held by Mr. Au Yeung Kwan, and now transferred back to Mr. Lee Lam.

4.  Mr Au Yang Kwan and his friend’s shares be transferred to Lee Lam; Lee Lam to use the properties of Pahsang Industrial Building including 1/F, (1 flat) 13F, (4 flats) 17/F, (1 flat) at price 1,500 / feet including (Stamp Duty) as offset, the shares of the Chinese restaurant; if there is a surplus, used (toward) shortfall above.

[5]  1/F (1 electric meter) 13/F (2 electric meters) with Au Yeung Kwan being responsible for removal cost

1.  (approximate) price of removal around $148,000

2.  Electric meter  1/F, 1 electric meter

                          13/F, 2 electric meters

  All items above are agreed by both parties and confirmed with signatures.”

A5.  Steps taken by parties in August 2014

31.  Immediately after the Meeting, LL entrusted Law to deal with matters relating to the verification of the amounts invested by AYK and the 4 Friends based on copies of the cheques provided by AYK, the value of the 6 Pahsang Units and the corresponding amount of outstanding mortgage loans. After a few rounds of discussions between Law and AYK, with drafts being provided for review by LL and AYK, Law produced:

(1)  a final version of the Investment Schedule dated 25 August 2014; and

(2)  a document dated 25 August 2014 entitled “百勝工業大廈” and “葵得工業中心”, which listed the value of 4 Pahsang units, the respective amounts invested by LL, Chow, Kong and AYK in Kwai Tak Properties and the reconciliation against the $27,765,157.5 paid by AYK and the 4 Friends (“Reconciliation Schedule”).

32.  In the Reconciliation Schedule, the net amount payable by LL to AYK was stated as $3,315,794.40, which was derived from the following items:

	Assets to be transferred to AYK	Amounts to be paid by LL
Pahsang 13A-D 10,664sf x $1,500 psf	$15,996,000.00
Outstanding loans owed to bank as at 16/7/2014		$4,297,457.24
Amounts invested by LL, Chow, Kong and AYK in Kwai Tak Properties	$12,350,820.34[9]
Actual charge of facilities	$400,000.00
AYK Investments + 4 Friends Investments		$27,765,157.50
Total	$28,746,820.34	$32,062,614.74
Amount payable by LL to AYK	$3,315,794.40

33.  AYK takes issue with the correctness of the Reconciliation Schedule on the basis that under the Agreement, LL was obliged to transfer all the 6 Pahsang Units to him, instead of 4 units.

34.  Yau asked the staff of Bentleys to prepare the documents for the purpose of transferring the 5 Number Companies from LL and Mrs Lee to AYK.  These included the bought and sold notes, instruments of transfer and Notices of Resignation of Company Secretary and Director (Form ND4) to be filed at the Companies Registry (collectively “Transfer Documents”).  In mid-August 2014, Yau brought the Transfer Documents to LL and Mrs Lee for their consideration, and they both signed on the Transfer Documents.  There is a dispute as to whether prior to LL and Mrs Lee signing the Transfer Documents, Yau gave an undertaking to LL that he would not pass the Transfer Documents to anyone before completion of the Agreement.

35.  In the meantime, in view of the fact that AYK and LL had provided guarantees in favour of the banks as security for the mortgage loans taken out when the properties were acquired, AYK instructed his solicitors to prepare a draft 還款安排協議書 (“Repayment Agreement”) to formalise the arrangement with regards to such guarantees and loans.

36.  On 25 August 2014, being the date suggested by AYK for completion of all the transfers under the Agreement, AYK met with Law trying to agree on the wordings of the Repayment Agreement but no agreement could be reached.  

37.  On 26 August 2014, AYK informed the 4 Friends that negotiations with LL had broken down and he would ask solicitors to issue demand letter to LL.  AYK signed the Transfer Documents and instructed Bentleys to proceed with stamping the bought and sold notes and instruments of transfer and filing the relevant notices at the Companies Registry in respect of the change in directors, company secretary and registered office with effect from 27 August 2014.  Since then, AYK has been the sole shareholder and director of the 5 Number Companies. 

38.  After LL had discovered the transfer of the 5 Number Companies to AYK, he called Yau and accused him of passing the Transfer Documents to AYK without his instructions.  On 1 September 2014, LL and Law attended Bentleys’ office to look for Yau but to no avail. 

A6.  Demands for completion of the Agreement

39.  By letter dated 4 September 2014, Messrs KM Tang & Co (“KMT”), on behalf of AYK, stated that (“1^st Demand Letter”):

(1)  LL had already performed his obligation under §4 of the Agreement.

(2)  LL had not signed the documents for the purpose of transferring 2333 Limited and Units A, B on 10/F and carpark no. 7 at Kwai Tak Industrial Centre to AYK, despite being told by Mr Liu, the accountant retained by AYK, that they were ready for his execution.

(3)  AYK had already prepared and signed the documents to transfer the shares in 7000 Limited and New Century to LL.

(4)  KMT had prepared the documents for the purpose of transferring Unit 10E and carpark no 27 at Kwai Tak Industrial Centre to AYK, and awaited LL’s execution.  

(5)  LL was required to sign the transfer documents in respect of 2333 Limited within the next 7 days.  Within 7 days of receipt of the signed documents in respect of 2333 Limited, KMT would deliver the transfer documents in respect of 7000 Limited and New Century for LL’s signature and would effect the transfer immediately. 

(6)  AYK would consider LL’s failure to sign the transfer documents in respect of 2333 Limited within 7 days as constituting a breach of the Agreement and would commence legal proceedings against LL without further notice. 

40.  In response, LL through Law informed AYK that he would only agree to complete and execute other agreements if AYK would first transfer the 6 Pahsang Units to LL.  By letter dated 12 September 2014, KMT informed LL that AYK did not agree with LL’s proposal, but would give 7 days for LL to sign the transfer documents in respect of 2333 Limited or contact KMT to arrange an appointment for both parties to sign the transfer documents simultaneously.  If LL failed to do either, AYK would treat LL as having acted in breach of the Agreement and would present the $12,000,000 cheque issued by LL in favour of AYK (“$12m Cheque”) as partial repayment of the amount which ought to have been returned to AYK (“2^nd Demand Letter”).   

41.  By 2 letters dated 23 September 2014, KMT informed Messrs Ivan Tang & Co (“ITC”), solicitors for LL, that AYK would present the $12m Cheque for payment within 7 days and would attend the office of New Century to inspect its books and records on 9 October 2014. 

42.  Meanwhile, KMT on behalf of 7000 Limited issued a letter dated 3 October 2014 to LL to terminate the licence for occupation of Raton Property with effect from 3 November 2014, and required LL to deliver vacant possession on the same day (“Termination Notice”).   

43.  In their letter dated 21 October 2014, ITC replied to the 1^st and 2^nd Demand Letters in this way (“ITC’s 1^st Letter”):

“We are instructed that the Agreement remains on foot and shall be executed by the respective clients at the same time.  Our client agrees that the respective clients should attend the office of a solicitors [sic] to sign the documents simultaneously (refer to paragraph 3 of [the 2^nd Demand Letter]).  After all, this was the intention when the Agreement was entered. 

Without our client’s knowledge of the time of execution, several documents were executed and [the 5 Number Companies] were transferred to your client in accordance with the Agreement, namely:-

…

Please note that our client is ready and willing to perform the obligations of the Agreement.

An update of the valuation, including but not limited to the outstanding mortgages, should also be conducted by the respective clients to ascertain the underlying value of the Agreement before the simultaneous signing of the documents.

Please let us know when your client is ready and willing to perform in accordance with the Agreement.” (underlined added)

44.  On the next day, by letter dated 22 October 2014 KMT stated that (“3^rd Demand Letter”):

“Our client is at all time ready and willing to perform his obligation of the Agreement and to execute the documents as referred to in [the 2^nd Demand Letter].

Our client admitted that [the 5 Number Companies] were all transferred to our client on 27^th August 2014 but disagrees that the same were transferred without the knowledge of your client.

We are instructed that the value of each property mentioned in the Agreement has already been agreed.  Therefore, the signing of the documents need not be [sic] wait for the update of the valuation since the property’s value has been agreed before the signing of the Agreement. 

We propose our respective client shall attend solicitors’ office, which office is to be agreed, to sign the documents simultaneously within 14 days from the date hereof i.e. on 5^th November 2014.”   

45.  ITC did not reply to the 3^rd Demand Letter.  In KMT’s letter dated 28 October 2014, they confirmed that AYK remained “ready and willing [to] perform the obligations of the Agreement to execute the documents on 5^th November 2014 as proposed” and had no objection to attend ITC’s office to execute the documents.  Unless ITC provide their written reply by 31 October 2014, AYK would institute legal proceedings without further notice (“4^th Demand Letter”).

46.  In their 1^st letter dated 31 October 2014, ITC replied to the Termination Notice that LL had always been the owner of Raton Property and that AYK had been holding the same on trust for LL (“ITC’s 2^nd Letter”).  ITC went on to say this:

“Further or alternatively, an agreement dated 11^th July 2014 was signed between our client and [AYK] with terms, inter alia, that 7000 Limited which holds [Raton Property] is to be transferred to our client.  Therefore, our client has obtained equitable interest in 7000 Ltd and the Property as of 11^th July 2014.”

47.  In their 2^nd letter dated 31 October 2014, ITC replied to the 3^rd and 4^th Demand Letters stating that (“ITC’s 3^rd Letter”):

(1)  as regards the Transfer Documents, LL disagreed that he had knowledge of the time of execution, “as all the documents relevant to the Agreement were intended to be executed by the respective clients simultaneously on the intended completion date on 30^th August 2014 but not before” (underlined added);

(2)  the terms of the Agreement included the shares of the restaurants and the Pahsang units.  “The respective valuation and outstanding mortgage must be assessed and could not be agreed upon by the respective clients before the signing of the Agreement”;

(3)  the Investment Schedule and Reconciliation Schedule prepared by Law had not been confirmed by AYK; and

(4)  unless they received AYK’s written confirmation on the Investment Schedule and Reconciliation Schedule “to indicate that your client is ready and willing to perform the obligations of the Agreement within 14 days from the date hereof, i.e. on or before 14^th November 2014”, LL would treat AYK as having repudiated the Agreement and legal proceedings would be commenced against AYK without further notice. 

48.  By letter dated 4 November 2014 KMT replied to ITC’s 2^nd and 3^rd Letters stating that (“5^th Demand Letter”):

(1)  AYK had invested more than $3 million in 7000 Limited and had been responsible for repaying the mortgage loan every month and, as such, he was not holding Raton Property on trust for LL;

(2)  AYK was at all times ready and willing to perform the Agreement, but LL “default in performing the Agreement by executing all the documents simultaneously with [AYK] despite repeated demands”;

(3)  the Investment Schedule and Reconciliation Schedule were “incorrect and inconsistent with the terms and conditions of the Agreement” in that under §4 of the Agreement, LL had agreed to transfer the 6 Pahsang Units to AYK and “any balance thereof shall be dealt with by way of apportionment account after completion and due performance of the Agreement”; and

(4)  LL was demanded to perform his obligations of the Agreement by executing the documents by 11 November 2014. 

49.  On the last day of the deadline imposed in the 5^th Demand Letter, ITC in their letter dated 11 November 2014 stated that (“ITC’s 4^th Letter”):

(1)  LL had already transferred the 5 Number Companies which held the 6 Pahsang Units to AYK “in accordance with the terms of the Agreement (although without [LL’s] knowledge of the time of execution of the transfer)” (underlined added);

(2)  LL had agreed in ITC’s 1^st Letter that the respective clients should attend the office of a solicitor to sign the documents simultaneously;

(3)  AYK had not provided any particulars as to which part of the Investment Schedule and Reconciliation Schedule was incorrect and inconsistent with the terms of the Agreement;

(4)  It was “always the intention and only reasonable that the assessment and apportionment shall be done BEFORE the execution of the Agreement”;

(5)  ITC emphasised that “the shares of the restaurants contained in paragraph 4 of the Agreement must be assessed before the completion of the Agreement”; and

(6)  AYK “must facilitate execution of the Agreement by providing the documents endorsed by his friends to confirm and acknowledge their relinquishment of their beneficial interests in the said shares of the restaurants”.  AYK was requested to confirm that he was ready and willing to perform the Agreement by “producing copies of the said endorsement documents signed by his friends within 7 days”, failing which LL would treat AYK as having repudiated the Agreement and legal proceedings would be commenced without further notice.  

50.  On 3 December 2014, AYK commenced HCA 2464/2014. LL commenced HCA 2473/2014 the next day.

B.  ISSUES

51.  In view of the prolixity of the D&CC (which runs to 68 pages) and the apparent factual inconsistencies pleaded therein, at the PTR on 11 June 2020, this Court directed the parties to prepare and lodge an agreed list of issues to identify what are the real issues which require determination of the Court.  However, in the Agreed Issues, counsel identified 44 issues which is most unhelpful.  During trial, this Court reminds Mr Sit that in identifying what are the real issues, he has to take into account the facts which are no longer in dispute and the requirement that a party cannot plead or maintain inconsistent factual allegations in relation to a matter which is plainly within his knowledge[10].

52.  In the revised Agreed Issues submitted on 18 September 2020, counsel identified the following 13 issues:

(1)  Whether the Agreement is legally binding or a preliminary or incomplete agreement, given that it is “silent” on (i) how many of the Pahsang units shall be transferred; (ii) to whom such units shall be transferred; and (iii) who shall transfer the Kwai Tak Properties to AYK (Incomplete Agreement Issue). 

(2)  If the Agreement is binding, whether it is only contained in the Agreement or it contains an oral term that “the transfer documents would be exchanged simultaneously” (“Oral Term”); and whether it contains implied terms that (i) AYK warrants that the 4 Friends are willing to sell their interest in the restaurants to LL; (ii) AYK warrants that he has been authorised by the 4 Friends to sell their interests; and (iii) the exchange of the transfer documents will only take place after LL and AYK have agreed on the total amount invested by AYK and the 4 Friends and the net value of LL’s real properties (collectively “Implied Terms”) (Additional Terms Issue). 

(3)  If the Agreement (with the Oral Term and Implied Terms) has contractual force, whether it was the parties’ intention and/or by necessary implication that it is subject to either condition precedent or condition subsequent and whether such condition failed in that (i) the 4 Friends no longer wish to sell their interests in the restaurants; (ii) AYK and LL failed to agree on the total amount invested by AYK and the 4 Friends and the net value of the real properties; and (iii) simultaneous exchange of transfer documents became impossible after AYK had unilaterally “misappropriated” the 5 Number Companies (Condition Precedent / Subsequent Issue). 

(4)  Alternatively, whether the Oral Term and Implied Terms constituted conditions of the Agreement, and whether AYK acted in breach of such conditions and thereby repudiated the Agreement (Repudiation Issue).

(5)  Alternatively, whether AYK made a representation to LL that “he [had] already been authorised by the [4 Friends] to sell their said interest” (“Representation”) which induced LL in entering into the Agreement (Representation Issue).

(6)  If AYK made the Representation, whether it is false and made by AYK fraudulently or recklessly (False Representation Issue).

(7)  Whether LL was in breach of the Agreement by refusing and/or failing to execute the share transfer documents in respect of 2333 Limited and Comforthome (2333/ Comforthome Issue).

(8)  Alternatively, if the Agreement is invalid, whether AYK is entitled to obtain return of the AYK Investments[11] and the 4 Friends Investments on the basis that LL holds such Investments on trust for AYK after the parties have agreed to settle their dispute by entering into the Agreement or, alternatively, the consideration for the advancement of the AYK Investments and the 4 Friends Investments has wholly failed, and LL has been unjustly enriched at the expense of AYK (Return of Investments Issue).

(9)  Whether AYK is holding all the shares in New Century on trust for LL (as AYK contends) or 75% on resulting and/or constructive trust for LL (as LL contends) (New Century Issue). 

(10)  Whether AYK acted in breach of his fiduciary duties and/or trust by (i) refusing to exercise his power qua shareholder to procure repayment of the LSH Loan to LSH; and (ii) refusing to return 75% shares in New Century to LL, and whether LL has suffered a loss (Breach of Fiduciary Duties Issue). 

(11)  Whether AYK is holding all the shares in 7000 Limited on constructive trust for LL or, alternatively, whether 7000 Limited is holding Raton Property on resulting trust for LL (7000 / Raton Issue).

(12)  Whether AYK has obtained the shares in the 5 Number Companies by “fraud” and, if so, whether AYK is holding such shares on constructive trust for LL (5 Number Companies Issue).

(13)  Whether Yau owed to LL (i) a duty of care in keeping the Transfer Documents pending completion of the Agreement; and (ii) fiduciary duty to act in LL’s best interests by virtue of “the power-dependency relationship”, and whether Yau acted in breach of such duties by releasing the Transfer Documents to AYK prematurely (Yau Issue).

53.  In addition, there is an issue on the construction §4 of the Agreement (Construction Issue).  I deal with each issue in turn.

C.  ANALYSIS OF ISSUES

C1.  Incomplete Agreement Issue

54.  The contention that the Agreement is a preliminary or incomplete agreement is wholly devoid of merit. 

55.  First, it is clear from the extensive discussions during the Meeting that LL and AYK both knew and agreed that the Agreement set out a “framework” in respect of the assets to be transferred to the other, and LL and AYK would procure such assets to be transferred.  LL and AYK knew that there were other investors who had interests in the assets to be transferred, and were content to proceed on the basis that it was their respective responsibility (and no one else) to procure the transfers of the assets in question.  The fact that the Agreement did not spell out the obvious fact that (1) the Pahsang units were to be transferred to AYK, and (2) it was the responsibility of LL to transfer Kwai Tak Properties to AYK would not render the Agreement to become a preliminary or incomplete agreement.

56.  This is reinforced by the conduct of LL and AYK after the Agreement (described in Section A5 above), which shows that both parties knew what assets were to be transferred to the other without any doubt or uncertainty. 

57.  Ms Wong relies on LL’s own evidence under cross-examination which, she says, shows that LL clearly understood the 6 Pahsang Units were to be transferred to AYK:

“Q:  我向你指出，條款係應該將6個單位轉俾歐陽坤。

A:  唔同意。

…

Q:  當日簽咗呢份文件，簽係諗住會執行？

A:  對啱數，佢又同意，咁我就執行。砌夠，執行，廢事煩。

Q：你講法其實執行唔到？

A:  如果佢用六個單位咁點執行。你2700幾萬條數就梗架嘛。

Q:  簽完你未執行到？

A:  要對數先執行，大家同意對數就執行到。如果7月11份野同意咗，就唔 …

…

Q:  … 執行到，意思唔知幾多個百勝單位？

A:  對好數先，真係六個我都願意俾，四個夠就 … 六個都唔夠就 俾晒都再補錢。” (underlined added)

58.  As regards Kwai Tak Properties, Ms Wong relies on LL’s evidence under cross-examination, which shows that the parties understood that Kwai Tak Properties were to be transferred to AYK and how the transfer should be made:

“Q:  話呢個合約點解唔完整，清楚轉俾歐陽坤。

A:  佢遵守就係咁。簽時好清楚係俾佢，或者俾你都得。

Q:  葵德都係俾歐陽？

A:  係。葵德個度，轉俾歐陽坤，點轉大家都知，因為我要做晒所有手續 …

Q:  你知點轉，唔洗傾？

A:  唔洗傾，係弱智個啲唔識咋嘛。” (underlined added)

59.  The above evidence of LL shows that (1) all along he intended to perform the Agreement and the parties only needed to carry out reconciliation of the value of the assets to be transferred against the total amount of the AYK Investments and the 4 Friends Investments; and (2) it was unnecessary for the parties to discuss how to transfer Kwai Tak Properties, as both parties knew that LL had to procure the transfer of Kwai Tak Properties to AYK.

60.  Second, I do not agree that the Agreement is “silent” on how many Pahsang units are to be transferred to AYK. In §4 of the Agreement, the 6 Pahsang Units were mentioned.

61.  Third, even after the parties’ relationship had turned sour and AYK issued the 1^st to 5^th Demand Letters requiring LL to perform his obligations under the Agreement, in ITC’s 1^st, 3^rd and 4^th Letters, ITC acknowledged on behalf of LL that the parties could perform the obligations under the Agreement and that LL was ready, willing and able to perform the Agreement. This militates against any suggestion that the Agreement is a preliminary or incomplete agreement. 

C2.  Additional Terms Issue

62.  As regards the Oral Term (as formulated by LL), it can be seen from the following extracts of the transcripts that when AYK and LL used the word “simultaneous”, they were referring to the requirement that both parties would perform their obligations by signing the transfer documents prepared by their respective lawyers.  There was no reference to the requirement that both parties would exchange the transfer documents simultaneously, as alleged by LL:  

“[LL]:  如果咁呢葵德同埋7000，我就轉葵德俾你，你就轉番7000俾如意，咁呢，新世紀就同步進行，好無？

[AYK]:   簽番晒咪同步進行囉”[12]

…

“[LL]:  嗱，你講清楚先，唔好寫住，如果你話我簽咗俾你，你先簽 … 我就唔制㗎啦”[13]

…

“[LL]:  你唔同步進行嘅，我就唔會攪架啦”[14]

…

“[AYK]:  一齊一齊一齊同步進行，去搵律師做”[15]

63.  I do not agree with Mr Sit’s submission that AYK admits, under cross-examination, that it was an oral term of the Agreement that all the transfer documents were to be exchanged simultaneously.  As Ms Wong submits, all that AYK says is that the term “simultaneous” (同步) was  mentioned at the Meeting:

“Q:  你同唔同意，呢兩頁 [referring to the Agreement]無完整紀錄協議？

A:  簽晒，重同意啲咩？

Q:  口頭上有達成條款，必須同步進行。

A:  我有同步你無同步，律師叫佢黎簽你都無用。我接受同意同  步，我理解同步就係我做咗，你 …

Q:  雖然同步無寫落去，但呢個係你地協議一部份。

A:  係有講過同步。

Q:  唔係問你有無講，係問你接受，轉黎轉去呢啲要同步，係協議一部份？

A:   當晚講過，我話同步，搵律師做。

Q:   我唔係問你有無討論 …

A:   同意咗同步。總之我有講過同步

…

[after going through the transcript of the Meeting]

…

Q:   呢度全部講要同步進行？

A:   係，咁佢唔同步我又唔洗執行合約呀？

Q:   要同步你都應承咗？

A:   係呀，咁後來佢反口呀嘛。” (underlined added)

64.  That the parties did not at the Meeting agree on the Oral Term is reinforced by the fact that when ITC responded to KMT’s suggestion (in 2^nd Demand Letter) that LL should either sign the transfer documents in respect of 2333 Limited or contact KMT to arrange an appointment for both parties to sign the transfer documents simultaneously, they said “[o]ur client agrees that the respective clients should attend the office of a solicitors [sic] to sign the documents simultaneously” and said that “this was the intention when the Agreement was entered” (see ITC’s 1^st Letter quoted in §43 above).

65.  Similarly, in ITC’s 3^rd Letter in response to KMT’s suggestion (in 4^th Demand Letter) to execute the remaining transfer documents at the office of ITC, again ITC said the relevant documents were “intended to be executed by the respective clients simultaneously” (see §47 above). 

66.  There is no suggestion that the contents of ITC’s 1^st and 3^rd Letters are in anyway incorrect or that they were not based on the instructions of LL.  These letters were written at the time when LL already had the benefit of legal advice and the parties were still trying to perform their respective obligations under the Agreement and, as such, should be taken as representing the true position. 

67.  For the above reasons, I hold that LL fails to discharge the burden of proving that the Oral Term formed part of the Agreement. 

68.  I turn to the Implied Terms, namely:

(1)  AYK warrants that the 4 Friends are willing to sell their interest in the restaurants to LL and he has been authorised by the 4 Friends to sell their interest (“Authority Term”); and

(2)  the exchange of the transfer documents will only take place after LL and AYK have agreed on the total amount invested by AYK and the 4 Friends and the net value of LL’s real properties (“Agreed Amount Term”).

69.  The requirements for implying a term in a written contract were stated by Lord Simons in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26 (as applied in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59) in this way:

“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

70.  So far as the Authority Term is concerned, I do not think it can be implied into the Agreement as it is not necessary to give business efficacy to the Agreement. 

71.  First, as stated in §55 above, it was well known to AYK and LL that there were third parties’ interests in the assets to be transferred and the parties made the Agreement on the basis that it was their respective responsibility to procure the relevant assets to be transferred to the other.  These included: (1)  Kwai Tak Properties to be transferred to AYK in which Kong and Chow had interests; and (2) the restaurants[16] in which the 4 Friends had invested. 

72.  So far as the 4 Friends Investments are concerned, at the Meeting, AYK emphasised that it was him who had brought the 4 Friends into investing in the restaurants, and he was obliged to obtain return of their Investments as and when he withdrew his investments with LL.  So long as LL repaid the amount invested by AYK and the 4 Friends, it was a matter for AYK to account for and return the amounts invested by the 4 Friends.  This was the basis upon which LL agreed to “buy back” all the AYK Investments and the 4 Friends Investments[17].

73.  Second, it is not in dispute that the 4 Friends have never been registered as shareholders in any of the restaurants managed and controlled by LL.  Under cross-examination, LL confirms that the 4 Friends made their investments through AYK and none of them has ever been registered as shareholder.  He also confirms any investor may withdraw if another person is willing to take over his investment.  This shows that the Agreement is effective without the Authority Term.  Indeed, until ITC’s 4^th Letter which was sent 11 days after LL had allegedly treated AYK as having repudiated the Agreement, both parties proceeded on the basis that the Agreement could be performed without the Authority Term. 

74.  Third, after the 4 Friends had been provided with a copy of the Agreement on 30 August 2014, none of them raised any objection to §4 which stated that AYK and his friends’ “shares” in the restaurants be transferred to LL in exchange for the payment to be made by LL.  Further, at different times after the Meeting, the 4 Friends confirmed to AYK that they had made their investments through AYK and had all along been represented by him and that they did not have any right or standing to ask LL to return their investments.  This can be seen from the following:

(1)  The messages exchanged between AYK, Ng and Ngan’s wife, Madam Chow Ying Ping (周英萍) (“Mdm Chow”) on 30 and 31 August 2014. :

“[Mdm Chow]:   我哋已承諾全部股份已在你手，為何要去問郭生，你是否有問題

[Mdm Chow]:   你最好抽時間同我地講清楚

[AYK]:   (第一) 合約正在處理未正式收到錢，(第二) 6/7/8月未派息，（第三) 叫他開會並非壞事，我們最終希望收到錢

[Mdm Chow]:   根本我地冇資格出聲

[Mdm Chow]:   你已經全部代表我地

[Ng]:   同意!

[AYK]:  既然我代表你們，我要一致，處理合約需要時間，這份合約我已經聘請律師及會計師處理

[Mdm Chow]:   無問題，等你消息

[Ng]:  好  

[AYK]:   我通知了會計，加快度速[sic]查數

[Ng]:   我問過怡軒會計部林少[sic] 姐，她說我們各人從未入股東名冊，要追只能追你！我們入股都是你引進！我希望你能給我們明確退款的時間！

[AYK]:   伍先生，我幾時收過你錢，你的錢入落怡軒戶口，怡軒戶口是李林及郭綠明的，你為何這樣對我呢，李林借我錢，我追討李林還錢給我，我亦要求退出各行業投資的股份包括你們怡軒的股份，我是否做錯了，如果你們想留下股份，現在還有時間可以留下，但你們不想留下或是想自己追討，只要你們說，不想我歐陽坤代你們追討的話，我向李林揚聲就可以啦，但你們信任我歐陽坤我會不惜一切向李林追討，此事有今日是我引導你們走錯了路，但不是我欺騙你們，我近日受了你們對我的追討及指責，我受了極大的委屈

[Ng]:   只希望你記得你對我的承諾

[AYK]:   …

[Ng]:   你與李林的商業糾紛，我們不知始沒，不能評論。我們投資怡軒都是信你！你退我們跟着退。你是代表我們。我們從未成為怡靬[sic]軒股東，你是董事，我們只能靠你爭取取回投資。” (underlined added)

(2)  Yang and Au Yeung Wing Kin (歐陽永堅), representative of Ka Yee, were part of the group when the above messages were exchanged.  They did not raise any objection to what had been said by Ng and Mdm Chow. 

(3)  Mdm Chow (representing Ngan), under cross-examination, confirms that by July 2014, she already knew that AYK had withdrawn the investment on their behalf, and she agreed with it. 

(4)  Au Yeung Wing Kin acknowledged receipt of the draft authorisation letter sent by AYK on 11 September 2014 without any comment or objection. 

(5)  Yang confirmed on 21 August 2014 that he had authorised AYK to obtain return of his investment in Nice Inn.

75.  Having confirmed that AYK had authority to represent them in seeking return of their investment in the restaurants, it is not open to the 4 Friends to change their stance and contend that their investments were made in their own right or that AYK had no authority to obtain return of their investments in the restaurants.  As a matter of fact, despite their knowledge of these actions, none of the 4 Friends have sought to be joined as a party or raised any objection to the relief sought by AYK. 

76.  I turn to the Agreed Amount Term. 

77.  By the time of the Meeting, AYK had already obtained copies of all the cheques evidencing the amounts invested by him and the 4 Friends and provided such copies to LL and Law, and LL knew the amounts involved[18]. During cross-examination LL says that:

(1)  in late 2013, his relationship with AYK turned sour and AYK said he wanted to withdraw all his investments;

(2)  in early 2014, Law prepared an earlier version of the Investment Schedule which showed a breakdown of the AYK Investments and the 4 Friends Investments and provided the same for LL’s review;

(3)  at the Meeting, LL knew the total amount of AYK Investments and the 4 Friends Investments;

(4)  the framework of the Agreement was agreed at the Meeting, he and AYK had consensus on how much the properties worth. As he had been repaying the mortgage loans of some of the properties concerned, he had to check the amounts repaid by him;

(5)  in respect of Kwai Tak Properties and 6 Pahsang Units, he and AYK knew how much they worth and the only matters which he needed to check were the amounts of mortgage loans repaid and the amounts outstanding; and

(6)  although the amounts of outstanding mortgage loans were not known at the Meeting, the amounts could readily be ascertained from the banking records kept by Law.  In terms of ease of ascertaining the amounts of loans, there was no difference between the date of the Meeting and August 2014.

78.  It was with the above knowledge that AYK and LL came to agree on the terms of the Agreement.  As LL puts it repeatedly during cross-examination, what properties were required to be transferred to AYK and him were very clear, the value of the properties were known to both parties and the amounts of loans repaid and outstanding could easily be ascertained.  This confirms that the Agreement is effective without the Agreed Amount Term. 

79.  Further, by seeking to introduce the Agreed Amount Term, LL is in effect trying to re-write the Agreement by unilaterally creating a condition precedent never discussed or agreed between the parties.  Such Term is contradictory to the express terms of §§1 to 4 of the Agreement, which required the properties to be transferred without the alleged condition precedent. 

80.  In short, the Agreed Amount Term cannot be implied into the Agreement as it is not necessary to give business efficacy to the Agreement and it contradicts §§1 to 4 of the Agreement. 

C3.  Construction Issue

81.  A hotly contested issue between the parties is whether under §4 of the Agreement, LL is obliged to transfer the 6 Pahsang Units to AYK irrespective of the result of reconciliation (as AYK contends) or whether LL is only required to transfer 4 units on 13/F, leaving a balance of $3,315,794.40 to be paid by LL to AYK as to $100,000 per month (as LL contends).  Both counsel cross-examine AYK and LL extensively on this issue.  In my view, such issue turns on the construction of §4 of the Agreement. 

82.  It is well established that when construing the express terms of the contract, one must have regard to the context and the surrounding circumstances known to both parties at the time the contract was made (Lo Yuk Sui v Fubon Bank (Hong Kong) Limited [2019] HKCA 261 at §29).  However, the law imposes limits on both (1) the materials that inform the relevant context and surrounding circumstances, and (2) the extent to which such context and surrounding circumstances can affect the meaning of the express terms of the contract.

83.  In relation to the materials that inform the relevant context and surrounding circumstances of a contract, statements made in the course of pre-contractual negotiations are inadmissible for the purpose of drawing inferences of what the contract meant (Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279 at 296G-I, per Lord Hoffmann NPJ).  However, pre-contractual negotiations may be looked at for the purpose of establishing an objective facts known to both parties at the time of making the contract (Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, at §§38, 42, per Lord Hoffmann).

84.  As to the extent to which context and surrounding circumstances can bear upon the meaning of the express terms of a contract:

(1)  The plain, ordinary meaning of the words used must be the primary guide to what the parties have meant. 

(2)  Whilst the law generally favours a commercially sensible construction, if the ordinary meaning of the words made sense in relation to the rest of the document and the factual background, the Court will give effect to that language, even though the consequences might appear hard for one side – the surrounding circumstances and commercial common sense do not represent a licence to the Court to rewrite a contract merely because its terms seemed somewhat unexpected, a little unreasonable, or not commercially very wise (Jumbo King, at 296G; Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632, at §§74-79). 

85.  As stated above, the Agreement was made during the Meeting and was intended to serve as a framework for AYK to exit from all the investments he had made with LL.  At the Meeting, the parties said this:

“[Law]:  嗱，好啦，又講到呢步啦，我又清晰啲去引述啦吓，所有酒樓，([AYK]: 下) 我哋名下所有酒樓([AYK]: 下) 嘅股份包埋你嗰班朋友，([AYK]: 係喇) 頭先講嗰幾個名

[AYK]:  係喇係喇

[Leung Chi Kwan]:  一抽清晒

[AYK]:  一抽清晒落去

[Law]:  一個，一個總數，([AYK]: 係啦) 就用百勝其中物業，([LL]: 係啦) 就用百勝嘅其中物業

[AYK]:  咁得啦

[LL]:  你要幾多樓

[AYK]:  我

[Law]:  諗清楚先

[AYK]:  我唔知幾樓喎

[LL]:    十三樓有四個單位就

[Leung Chi Kwan]:  幾多樓（[AYK]：邊度夠數呀），都無所謂架喇，反正

[AYK]:  邊度夠數呀就，我唔知幾多樓

[LL]:  嗱，咁呢，唔夠數呢，就百勝一樓，五千幾尺，([AYK]: 下) 十三樓，一萬零六百尺，([AYK]: 下) err … 十七樓，二千幾尺，如果唔夠數呢，就所有立埋俾你，([AYK]: 係呀) 好唔好

[AYK]:  呢個，呢個好呀

[LL]:   嗱咁呢，就你就唔 … 干涉唔到你喇

[AYK]:  唯有咁啦

…

[LL]:  嗱我講千五蚊呎，嗱我同亞明哥講緊架，俾佢老友傾緊㗎依家，最慘就係一千六百二，人哋問我收唔收票，我問佢，佢話唔收，因為我應承千五蚊俾佢呀嘛，唔收大𨶙鑊呀，一走咗就無啦，咁我亦都話啦，厘印費我俾晒，厘印費我俾晒，當呎價千五蚊，厘印費包埋㗎啦，咁呢電錶拆嘢嗰度，真係，即係後數嚟嘅

[Leung]:   咪唔好揀電錶個層囉

[LL]:  電錶個層先係大呀嘛，你對唔夠呀嘛，上面得千七百幾呎，十三，十七樓

[Law]:  咁你對左層大嘅先囉，有剩 … [疊聲，不能辨識]

[LL]:  … [不能辨識] 嗰啲好少錢黎咋

[AYK]:  大至細啦 ([Law]: 係喇，先攞舊大嘅)

[LL]:  你攞晒咁多啲股份俾晒我呢實係要攞晒㗎啦，你唔攞晒嘅

[AYK]:  攞晒呀，咁攞晒囉” (underlined added)

86.  It can be seen from the above discussions that it was the common intention of both parties, and subsequently agreed by them, that the actual number of Pahsang units required to be transferred from LL to AYK would depend on the result of reconciliation between the value of the units (i.e. $1,500 psf times the size of the units less the amount of outstanding loans in respect of such units) (“Net Value”) and the amount invested by AYK and the 4 Friends, and AYK would first take the larger unit, follow by the smaller units until the value reached the aggregate amount of the AYK Investments and the 4 Friends Investments. 

87.  In construing the meaning of “李林用百勝工業大廈1/F, (1 單位)，13/F (4 個單位), 17/F (1 單位) 作價1,500 / 呎包括 (Stamp Duty) 作對數酒樓的股份” in §4 of the Agreement, it is necessary to take into account the above objective facts and the net value of Kwai Tak Properties to be transferred to AYK under §1 of the Agreement, having regard to the wordings in the latter part of §4 which state that “如有餘款再作以上之不足之數”.

88.  In my view, §4 of the Agreement, properly construed, requires the parties to do the reconciliation in a manner akin to the Reconciliation Schedule, which shows that LL is required to transfer the 4 units on 13/F in Pahsang and Unit A2 on 1/F, being the unit with a larger size, to AYK.  If there is any surplus, it shall be repaid by AYK to LL.

C4.  Condition Precedent / Subsequent Issue

89.  The alleged condition precedent or subsequent is no more than a different label put to the Oral Term and the Implied Terms in support of LL’s argument that the Agreement came to an end upon the alleged breach of such Terms.  In view of my holding that the Agreement is not subject to the Oral Term and Implied Terms, the issue does not arise for consideration.

90.  In any event, I do not think that there is any basis for LL to castigate the transfer of the 5 Number Companies to AYK as “misappropriation”.  It is not in dispute that LL and Mrs Lee signed the Transfer Documents pursuant to §4 of the Agreement.  AYK was entitled to have the 5 Number Companies transferred to him and took the corresponding responsibilities as their shareholder and director following the transfers.  The allegation that by completing the formalities associated with the Transfer Documents AYK was misappropriating the 5 Number Companies is vexatious and should never have been made. 

91.  As will be discussed in Section C7 below, the reason why the other properties could not be transferred in accordance with the Agreement was due to LL’s refusal to comply with the 1^st to 5^th Demand Letters, which provided 5 opportunities for LL to perform his obligations under the Agreement.   

C5.  Repudiation Issue

92.  As the alleged breach is premised on LL’s contention that the Oral Term and the Implied Terms formed part of the Agreement, which I do not think is the case, the issue does not arise for consideration. 

93.  In any event, I do not accept Mr Sit’s contention that LL is entitled to claim $515,700, being the stamp duty paid when workshop E and carpark no. 27 of Kwai Tak Industrial Centre was assigned from Comforthome to 2333 Limited on 3 May 2016 for $6.9 million.  No submission is made to explain why the workshop had to be assigned from Comforthome to 2333 Limited or why the stamp duty associated with the assignment can be said to be a loss caused by AYK’s repudiation of the Agreement. 

C6.  Representation Issue and False Representation Issue

94.  In the D&CC, the alleged Representation is pleaded in §26(b) as part of the oral terms allegedly agreed during the discussions at the Meeting.  In §29 of the D&CC, there is an alternative plea that the same Representation constitutes a representation relied upon by LL in  entering into the Agreement.  It has not been explained by Mr Sit as to how the same Representation could constitute a representation made prior to the Agreement and, at the same time, formed a term of the Agreement.   

95.  Nevertheless, the burden is on LL to adduce evidence in support of his allegation that AYK made the alleged Representation and that LL relied on such Representation in entering into the Agreement.  In his closing, Mr Sit is unable to identify any evidence in support of the allegation that AYK made a representation to LL to the effect that “he [had] already been authorised by the [4 Friends] to sell their said interest”.  Instead, Mr Sit resorts to an assertion, made for the first time in his closing, that AYK “effectively made an implied representation that ‘he [had] already been authorized by the 4 friends to sell their said interest’ on 11 July 2014”.  It is not open to Mr Sit to raise a new allegation which has never been pleaded, particularly when such allegation is contradictory to LL’s pleaded case that the Representation was allegedly made during the Meeting. 

96.  For completeness, in case these actions go further, I set out the facts and matters which show that the alleged Representation was never made by AYK, and LL did not rely on the alleged Representation in entering into the Agreement:

(1)  The transcripts of the Meeting show that the suggestion to sell the 4 Friends Investments only came about during the Meeting, when AYK suggested LL to buy out the 4 Friends Investments so that they could exit at the same time as AYK.

(2)  Nowhere in the correspondence, including the all-important ITC’s 1^st to 4^th Letters, was there any reference to the alleged Representation.  Instead, in ITC’s 4^th Letter, ITC said that AYK “must facilitate execution of the Agreement by providing the documents endorsed by his friends to confirm and acknowledge their relinquishment of their beneficial interests in the said shares of the restaurants”.

(3)  When LL is asked, during cross-examination, as to why he did not at the Meeting ask AYK to produce documents to prove that he had been authorised by the 4 Friends to sell their investments, LL says that as he already agreed to take over the 4 Friends Investments at the Meeting, it did not matter to him. 

97.  The allegation that AYK made the Representation fraudulently or recklessly is wholly without basis and should never have been made. 

C7.  2333 / Comforthome Issue

98.  It is not in dispute that despite repeated demands made by AYK through the 1^st to 5^th Demand Letters, LL refused to execute any documents for the purpose of transferring 2333 Limited and Comforthome or Kwai Tak Properties to AYK.  This constituted a breach of §1 of the Agreement.  I hold that the date of the breach was 11 November 2014, which was the time limit specified in the 5^th Demand Letter for the parties to attend the office of ITC to execute the remaining transfer documents at the same time (see §48 above). 

99.  I do not accept LL’s allegation that AYK failed to execute the documents for the purpose of transferring 7000 Limited and New Century to LL.  It was clearly stated in the 1^st to 5^th Demand Letters that AYK had already prepared and signed the documents to transfer the shares in 7000 Limited and New Century to LL and the only outstanding documents which awaited LL’s execution were the transfer documents in respect of 2333 Limited and Comforthome.  Had LL complied with the 5^th Demand Letter and signed the transfer documents in respect of 2333 Limited and Comforthome within the time limit imposed (there is no suggestion that the time limit was  unreasonable or could not have been complied with), the Agreement could have been performed by both parties on 11 November 2014. 

100.  Once LL executed the remaining transfer documents, the parties could have proceeded to finalise the reconciliation between the value of the properties transferred to AYK and the total amount of the AYK Investments and the 4 Friends Investments.  This would have been a simple matter, given that the Reconciliation Schedule had already been prepared by 25 August 2014 (see §32 above), and only the outstanding loans owed by the 5 Number Companies to the banks required to be updated. 

C8.  Return of Investment Issue

101.  In the SOC, it is pleaded that:

(1)  In early 2013, AYK and LL came to an agreement whereby the parties agreed to invest in a number of businesses including laundry, restaurant and real properties (“Investment Agreement”). 

(2)  There are implied terms to the Investment Agreement that (i) AYK is entitled to terminate the Investment Agreement by giving reasonable notice and (ii) LL shall provide an account of the investment made by AYK and repay AYK of the amount invested. 

(3)  Pursuant to the Investment Agreement, between 18 January 2013 and 16 September 2013, AYK invested an aggregate amount of $25,913,407.50 in accordance with LL’s instructions (i.e. AYK Investments plus $3 million later repaid by LL). 

(4)  AYK procured the 4 Friends to invest an aggregate amount of $5,080,000[19] in LL’s business.

(5)  In mid-July 2013, AYK and LL agreed that the laundry business of New Century should be returned to LL, and the $15 million contributed by AYK (which formed part of the AYK Investments) should be treated as a loan with interest payable on the loan (“NC Loan Agreement”).  Pursuant to the NC Loan Agreement, LL repaid $3 million as principal and $100,000 as interest to AYK. 

(6)  In July 2014, it was agreed between AYK and LL that the Investment Agreement would be discontinued and LL would return the AYK Investments and 4 Friends Investments to AYK.  The parties subsequently entered into the Agreement to settle their dispute.  

(7)  Upon the failure of LL to perform all his obligations under the Agreement: (i) LL holds the AYK Investments and the 4 Friends Investments on trust for AYK, and (ii) LL became liable to repay $12 million pursuant to the NC Loan Agreement.  Alternatively, the consideration for the advancement of the AYK Investments and the 4 Friends Investments has wholly failed, and LL has been unjustly enriched at the expense of AYK.   

102.  Insofar as the claim is based on the Investment Agreement, it must fail as AYK has not adduced any evidence in support of the Investment Agreement. 

103.  As regards the NC Loan Agreement, at trial, it is no longer in  dispute that amongst the AYK Investments, $15 million had been invested in New Century and LL repaid $3 million to AYK, leaving a balance of $12 million. 

104.  The following evidence shows that AYK and LL did enter into the NC Loan Agreement in mid-July 2013:

(1)  AYK’s evidence is that in mid-July 2013, he agreed to withdraw from New Century and LL would repay the $15 million invested by him with interest.  LL gave the $12m Cheque to AYK as security for repayment. 

(2)  In the 2^nd Demand Letter, AYK threatened to present the $12m Cheque for payment.  No response was made by LL. In the end, the $12m Cheque was not presented by AYK for payment. 

(3)  Although LL takes issue with who initiated the withdrawal,  he says that after AYK had a disagreement with Kwok over the latter’s failure to contribute 25% of the fund required to acquire New Century, he agreed with AYK to convert the $15 million invested by AYK in New Century into a loan, and issued the $12m Cheque as security for repayment of such loan.  

105.  As it is common ground that the parties subsequently entered into the Agreement to settle all their disputes, including AYK’s investment in New Century (and the conversion of the amount into a loan), it is unnecessary to grant any relief in respect of the NC Loan Agreement. 

106.  Ms Wong does not pursue the “trust” claim or the unjust enrichment claim, and no submission is made on either cause of action.  Mr Sit submits that as the AYK Investments were not received by LL, there is no basis to claim unjust enrichment.  As the claim has been abandoned, nothing further needs to be said. 

107.  Lastly, in respect of the alternative claim, Ms Wong submits that in view of the clear intention of both parties to end their joint investments by July 2014, and LL’s acceptance that he would return all the AYK Investments and the 4 Friends Investments to AYK, if the Agreement is held to be not binding, AYK is entitled to obtain the return of $27,765,157.50 from LL.  I am unable to accept this submission.  Unless and until a valid basis has been pleaded and proved which entitles AYK to obtain return of the AYK Investments and the 4 Friends Investments, there is no basis for AYK to require LL to repay either of the Investments to him.  The parties will have to continue to remain as co-investors in the business and real properties in which AYK has invested.   

C9.  New Century Issue

108.  LL’s claim that AYK only acquired 25% interest in New Century is incredulous, as AYK admittedly invested $15 million in acquiring New Century.  Pursuant to the NC Loan Agreement, LL only repaid $3 million to AYK, leaving $12 million unpaid. 

109.  In his closing, Mr Sit does not pursue the claim that AYK holds 75% of the shares in New Century on resulting and/or constructive trust for LL (as pleaded in §§10(h) and 80 of D&CC).  Instead, Mr Sit relies on the NC Loan Agreement and AYK’s “admission” in §20 of R&DC that he does not hold beneficial interest in the shares in New Century and submits that AYK holds all the shares in New Century on trust for LL.  I do not think §20 of R&DC contains an admission that AYK holds the shares in New Century on trust for LL. 

110.  The mere fact that AYK and LL entered into the NC Loan Agreement did not create a trust.  Nor did it create a fiduciary relationship between AYK and LL in respect of the shares in New Century.  This accords with the principle, as submitted by Ms Wong in her opening, that mere separation of legal and equitable ownership does not without more result in a fiduciary relationship or create a trust (R v Chester and North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496 at 1500H, per Millett LJ (as he then was)). 

111.  As Mr Sit makes no submission on how and in what circumstances the alleged trust or fiduciary relationship arose, there is no basis for LL to claim that AYK holds the shares in New Century on trust for LL.

112.  In any event, as the parties have subsequently settled all their disputes including the shares in New Century by entering into the Agreement, which I find to be binding upon the parties, no relief will be granted in favour of LL even if, contrary to my view, AYK is holding the shares in New Century on trust for LL.   

C10.  Breach of Fiduciary Duties Issue

113.  In §§43 and 81 of D&CC, it is pleaded that:

(1)  by reason of AYK holding 75% shares in New Century on trust for LL, AYK owed fiduciary duty to LL to “act and manage New Century and exercise his voting power in general meeting as per [LL’s instructions] and in any event to the best interest of New Century”;

(2)  by refusing to cooperate with LL in obtaining a loan facility from Dah Sing Bank which, if obtained, would carry a lower interest rate than the LSH Loan, AYK acted in breach of such duty;

(3)  in refusing to return the 75% shares in New Century to LL despite repeated demands, AYK acted in breach of trust; and

(4)  LL suffered loss, being the difference between the interest charged by LSH Loan (10%) and the “usual market rate” of 2.3% paid by LL from November 2013 to date. 

114.  Mr Sit submits that where a shareholder holds shares as a bare trustee for a third person, he is obliged to exercise his voting power in the way the beneficiaries desire (Kirby v Wilkins [1929] 2 Ch 444).  In his closing, Mr Sit contends that if AYK fulfilled his duties by exercising his voting power and appointing LL as a director of New Century as his replacement or simply returning the shares in New Century to LL, LL would have been able to re-mortgage the TMIC Properties to a bank and retire the LSH Loan. AYK should be liable to compensate LL for the extra interest paid by him.   

115.  The claim must fail, given that LL has abandoned his claim that AYK holds 75% shares in New Century for LL and has failed to discharge the burden of proving that AYK holds the shares in New Century on trust for LL. 

116.  Even if a trust arose at the time of the NC Loan Agreement (which has not been established), LL still has to prove that AYK came under the duty alleged to have been owed to LL.  No attempt has been made to address, let alone proved this issue. 

117.  In any event, there is no evidence to suggest that LL has requested AYK (1) to return the shares in New Century, be it 75% or 100%, or (2) to exercise his voting power by appointing LL as a director in place of AYK.  This is unsurprising, given that LL has not repaid the entire $15 million pursuant to the NC Loan Agreement or performed all his obligations under the Agreement.  It is also difficult to see how AYK can be said to have acted in breach of his fiduciary duties when it is common ground that the LSH Loan was taken out by LL for his personal purpose and the same was never used for the purpose of New Century.  As AYK was (and still is) a director of New Century, it is his duty to ensure that the assets of New Century, including the TMIC Properties, are used for the proper purpose of New Century, rather than for the personal purpose of LL.  Thus, even if, contrary to my view, AYK owed fiduciary duty to LL, I do not think that AYK acted in breach of his duty as he was justified in not complying with LL’s instructions which involved misapplication of New Century’s assets for the personal purpose of LL. 

C11.  7000 / Raton Issue  

118.  The claim that 7000 Limited is holding Raton Property on resulting trust for LL is misconceived. 

(1)  The only matters pleaded in support of LL’s claim that 7000 Limited is holding Raton Property on trust for him are (i) AYK has allegedly disavowed his interest in acquiring Raton Property; and (2) LL has been repaying the mortgage loan until August 2014 (since then, the loan has been repaid by AYK)[20].

(2)  So far as the alleged disavowing of interest is concerned, Ms Wong submits that the allegation is contradicted by the fact that in April 2013, when 7000 Limited was still a shelf company, Mrs Lee transferred all the shares to AYK so that he could continue with the acquisition of Raton Property, which he did by signing the relevant agreements (see §20 above). 

(3)  The mere fact that LL assisted 7000 Limited to repay part of the mortgage loan does not without more make 7000 Limited to become a trustee in holding Raton Property for LL.  This is particularly so when it is common ground that since August 2014, AYK has been repaying such loan.  At its highest, LL is only a creditor of 7000 Limited alongside with AYK and their interest in Raton Property ranks behind that of Dah Sing Bank which is the mortgagee of 2 mortgages created by 7000 Limited over Raton Property.   

119.  In his closing, Mr Sit relies on “the presumption of resulting trust” to claim beneficial interest in Raton Property on the basis that LL never intended to gift it to 7000 Limited.  It is not open to Mr Sit to run a new case which has never been pleaded.   

120.  As regards the claim that AYK is holding the shares in 7000 Limited on trust for LL, as pleaded in the D&CC, LL relies on the same matters described in §118(1) above. 

(1)  I do not see how AYK allegedly disavowed his interest in acquiring Raton Property in the past, even if established (which is not the case) could create a trust as alleged. 

(2)  Again, the mere fact that LL has repaid part of the mortgage loan owed by 7000 Limited would not turn AYK into a trustee in respect of the shares. 

121.  In his closing, Mr Sit tries to expand LL’s case by making 2 new allegations: (1) it is LL’s case that “it was the common intention of AYK and himself that AYK shall hold the shares in 7000, which was used to acquire the Raton Property, on LL’s behalf”; and (2) any contributions made by AYK with his own monies would simply be contributions made on behalf of LL.  Again, neither allegation has been pleaded and it is not open to Mr Sit to run yet another new case in closing.  

122.  For the above reasons, the claim in respect of Raton Property and the shares in 7000 Limited fails.

C12.  5 Number Companies Issue

123.  In §§39-40 and 74 of the D&CC, the claim is pleaded as a “fraud” or misappropriation of the shares in the 5 Number Companies as follows:

(1)  On or around 27 August 2014, without LL’s knowledge, AYK obtained the Transfer Documents from Yau (said to have been held in escrow) and put into effect by stamping and removing LL and Mrs Lee as directors and shareholders.

(2)  The Transfer Documents and hence the shares in the 5 Number Companies were obtained by AYK’s “fraud, theft and/or deceit”. The particulars pleaded are (i) AYK knew that Yau was not an accountant and it was wrong to describe him as such; (ii) AYK told the 4 Friends that he got the landed properties from LL, which he had planned for 7 days and nights and he would make LL say sorry to him; (iii) LL was told by Yau that AYK had obtained the Transfer Documents under the pretext that his lawyers wanted to have a look at them; (iv) Leung tried to persuade AYK to return the shares to LL as it would cause “many troubles” to Yau but AYK said that it was none of his business; (v) in view of the Oral Term of the Agreement, AYK knew that before completion, LL would not consent to his “unilateral appropriation of the [Transfer Documents]”.

(3)  By reason of the aforesaid matters, AYK is holding the shares in the 5 Number Companies on constructive trust for LL.  AYK’s refusal to return the shares constituted a breach of trust. 

124.  This represents a fundamental departure from LL’s case as pleaded in his (original) Defence dated 11 February 2015, where it was alleged that Yau acted in breach of his undertaking not to release the Transfer Documents to AYK before simultaneous exchange of all the transfer documents on completion, as follows:

(1)  LL instructed Yau to prepare the Transfer Documents “in preparation of the completion of the Agreement” (§11(b));

(2)  LL “was induced to sign the [Transfer Documents] prepared by [AYK] and/or [Yau] and/or Bentleys pursuant to the Agreement” (§11(g));

(3)  LL “was induced into believing in the undertaking by [Yau] that he would not release those signed [Transfer Documents] to anyone before the simultaneous exchange of all the relative share transfer documents in completion of the Agreement” (§11(h));

(4)  LL “was induced to entrust [Yau] to hold in escrow those [Transfer Documents] signed by [LL] upon [Yau’s] aforesaid undertaking” (§11(i));

(5)  Yau released the signed Transfer Documents to AYK without the knowledge or authorisation of LL (§11(k)); and

(6)  Yau released the signed Transfer Documents to AYK without acquiring in return the signed documents in respect of 7000 Limited, New Century and the 4 Friends Investments (§11(l)).

125.  In his opening, Mr Sit relies on a passage in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 715H-716D, where Lord Browne-Wilkinson explained that where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity. 

126.  In his witness statement, LL says that when Yau gave him the Transfer Documents for his signature, he told Yau not to pass the Transfer Documents to AYK before completion and was assured by Yau that he would not do so[21]. However, AYK and Yau reneged their promises made to LL (“雙雙背棄了對我作出的承諾”) by stealing the 5 Number Companies from him. 

127.  Under cross-examination, it is put to AYK that the unilateral transfer of the 5 Number Companies would be problematic in view of the Oral Term.  It is not put to AYK that his act in putting the Transfer Documents into effect constituted a “fraud, theft and/or deceit” or that it was done dishonestly.  AYK says that he put the Transfer Documents into effect to protect his interests, given that LL had refused to complete the Agreement on 25 August 2014, and he did not inform LL about the stamping as his solicitors and Yau had been liaising with LL.  I am unable to see how AYK’s act can be said to be dishonest.

128.  In his closing, Mr Sit submits that:

(1)  The 5 Number Companies were transferred to AYK without LL’s knowledge and authority, when AYK knew full well that the unilateral appropriation of the 5 Number Companies would be objected to by LL.

(2)  AYK’s act was inconsistent with the “prior understanding” reached between AYK and Law that only 4 of the 6 Pahsang Units would be transferred to AYK.

(3)  AYK has not given anything in return.  “There cannot be any honest or reasonable belief on the part of AYK that his appropriation of the shares would be consented to by LL”.

(4)  By transferring the 5 Number Companies to himself, AYK dealt with such Companies “inconsistent with the right of LL as the true owner”, and did so dishonestly.  A constructive trust shall be imposed on AYK in respect of the shares in the 5 Number Companies. 

129.  The allegations that the transfer of the 5 Number Companies to AYK constituted a “fraud, theft and/or deceit” or that it was done dishonestly are wholly without merit. 

130.  First, there was nothing improper, let alone dishonest, for AYK to put the Transfer Documents into effect on 27 August 2014, given that:

(1)  the transfer of the 5 Number Companies (and hence the 6 Pahsang Units) was a matter which had been agreed between AYK and LL under §4 of the Agreement;

(2)  the Transfer Documents were signed by LL and Mrs Lee themselves and given to Yau at the time when LL was admittedly still contemplating to perform his obligations under the Agreement;

(3)  consistent with the above, in the 1^st Demand Letter, KMT described the transfer of the 5 Number Companies as LL’s performance of his obligation under §4 of the Agreement, and proposed the parties to execute the remaining documents so as to effect the transfer of other companies and properties immediately;  

(4)  although in ITC’s 1^st Letter, they said that at the time of execution of the Transfer Documents, LL did not know the 5 Number Companies were transferred to AYK, they also described the transfer as “in accordance with the Agreement” and confirmed that LL remained “ready and willing to perform the obligations of the Agreement”.  The same points were repeated in ITC’s 3^rd Letter and ITC’s 4^th Letter, and LL was content with the parties executing the remaining documents simultaneously on the intended date of completion; and

(5)  throughout the correspondence, there was no complaint whatsoever that the transfer of the 5 Number Companies to AYK was constituted a “fraud” or that the transfer was made fraudulently or dishonestly.   

131.  Second, it is difficult to see how the same facts surrounding the transfer of the 5 Number Companies, which were known to LL and ITC at the material times, could undergo such substantial changes, from a transfer in accordance with §4 of the Agreement (in correspondence), then evolved into a transfer made in breach of Yau’s undertaking and the Oral Term (in Defence), subsequently to a “fraud, theft and/or deceit” (in the D&CC), then to a breach of assurance and promises made by Yau and AYK (in LL’s witness statement) and finally, a transfer inconsistent with the “prior understanding” allegedly reached between AYK and Law, without the authority of LL and constituted an appropriation made by AYK dishonestly.  The changes in the allegations are glaring and no attempt has been made by LL or Mr Sit to explain their inconsistencies.  I have no hesitation in rejecting the allegations.  

C13.  Yau Issue

132.  The claim against Yau, as pleaded in §§34, 45, 75-77 of the D&CC, is one for breach of duty of care and skill and fiduciary duty in that:

(1)  LL relied on “the express undertaking of Yau that he would not release [the Transfer Documents] to anyone before the clear cut proposal was completed”, and the Transfer Documents were held by Yau “in escrow” pending completion of such proposal (§34).

(2)  Yau told LL that he released the Transfer Documents to AYK on the basis that his lawyers wanted to have a look at them.  Thereafter, LL was unable to reach Yau, whether by phone or at the office of Bentleys (§45).

(3)  Having regard to the matters pleaded in §34, Yau owed a duty of care to keep the Transfer Documents and not to pass the same to others for viewing (§75).

(4)  Yau acted in breach of his duty by releasing the Transfer Documents to AYK “prematurely”, and LL suffered loss of rent and wasted expenditure (§76).

(5)  Yau owed fiduciary duty to LL to act in his best interests.  The fiduciary duty “arose out of the power-dependency relationship existing between [LL] and Yau” in the circumstances pleaded in §34 which made LL “vulnerable to abuse by fiduciaries and accordingly required protection by the law against abuse of power of the fiduciary” and Yau acted in breach of such duty by reasons of the matters pleaded in §§39-40 (§77). 

133.  Yau denies that he gave the alleged undertaking to LL or that he owed any duty to LL, given that LL was at all times represented by his own lawyers.

134.  Other than an assertion that Yau owed a duty of care and skill to LL when the received the signed Transfer Documents from LL, Mr Sit has not articulated any basis for contending that Yau owed such duty to LL. 

135.  In any event, I am not satisfied that LL discharges the burden of proving that Yau owed the alleged duty of care to him. 

136.  First, no such allegation was made in any of ITC’s Letters.  Had Yau given the alleged undertaking, ITC would have said so in the ITC’s 1^st to 4^th Letters where they addressed the transfer of the 5 Number Companies.

137.  Second, the account given in the witness statements of LL, Mrs Lee and Law on what was allegedly said by LL and Yau at the time when the Transfer Documents were signed are inconsistent with one another and inconsistent with the case pleaded in §34 of the D&CC.  In any event, the statements alleged to have been said by Yau do not amount to voluntary assumption of responsibility by Yau to keep the Transfer Documents on behalf of LL pending completion of the Agreement:

(1)  In LL’s witness statement, he says that before he signed the Transfer Documents, he told Yau that he could not pass the Transfer Document to AYK before completion, which was acknowledged by Yau.  The precise words used are “我記得當日我在落筆前，還千叮萬囑丘先生一日未成交，便絕不能把文件交予歐陽先生；得到丘先生的確認後，我才放心在文件上簽名” (§39).

(2)  On the other hand, Law who was admittedly not present when the Transfer Documents were signed, says in his witness statement that after LL and Mrs Lee had signed the Transfer Documents, LL told Yau not to pass them to AYK until AYK had produced all the documents he required to sign.  The words used are “當我回到樓面後, 李先生和李太已簽過文件, 並把它們交還給丘先生。李先生還鄭重叮囑丘先生, 倘若歐陽先生一日未交出他所需要簽署的轉讓文件的話, 丘先生便絕不可以拿百勝的文件去轉讓; 丘先生當時還表示那是當然的事。” (§25).

(3)  Mrs Lee says something similar to LL: “我丈夫便說他簽署也可以，但要求丘先生一定不要給歐陽先生，直至雙方協議好他才可以拿這些轉讓文件出來，當時丘先生還說他當然知道；我們得到丘先生的承諾後，便再入那一系列的轉讓文件上簽署。” (§16)

138.  Third, I accept Yau’s evidence that he did not give the alleged or any undertaking to the effect that he accepted the responsibility of keeping the Transfer Documents until completion.  There was no reason for Yau to give such undertaking at the time when LL was still contemplating to complete the Agreement.  I also accept Yau’s evidence that it was his usual practice to pass any transfer documents to the company secretary department of Bentleys for their handling, and he followed such practice in respect of the Transfer Documents.  He did not pass the Transfer Documents to AYK or caused the Documents to be stamped as it was not within his responsibility to do so. 

139.  As regards the alleged fiduciary duty, I am unable to see how the alleged undertaking, even if made out, can give rise to a fiduciary duty owed by Yau to LL. 

140.  It seems to me that even if the alleged duty is made out, it has not been demonstrated by LL that he suffered the alleged loss or that such loss was caused by the breach of duties on the part of Yau.  Rather, it was the result of LL’s own decision in not completing the Agreement pursuant to the 1^st Demand Letter. 

D.  Disposition

141.  For the reasons set forth above, I hold that:

(1)  The Agreement was (and still is) binding and enforceable between AYK and LL, and the parties were (and still are) under the obligations to perform the terms set out in §§1-5 thereof. 

(2)  Under §4 of the Agreement, LL was required to transfer the 4 units on 13/F and unit A2 on 1/F of Pahsang to AYK as repayment of the aggregate amount of the AYK Investments and the 4 Friends Investments, and AYK shall repay the surplus, if any, to LL.   

(3)  The Agreement is not subject to the Oral Term or the Implied Terms. 

(4)  AYK did not make the alleged Representation and LL did not enter into the Agreement in reliance on such (non-existent) Representation.

(5)  LL acted in breach of the Agreement by refusing to execute the documents for the purpose of transferring 2333 Limited and Comforthome (and hence the Kwai Tak Properties) to AYK by 11 November 2014, which was the date proposed in the 5^th Demand Letter for the parties to sign the remaining transfer documents at the same time.  

(6)  AYK and LL had entered into the NC Loan Agreement, but the same was superseded by the Agreement.  AYK’s alternative claim for return of the AYK Investments and 4 Friends’ Investment is not made out.

(7)  LL’s claim that AYK is not holding all the shares in New Century on trust for him is not established. 

(8)  LL’s claim that AYK acted in breach of fiduciary duties by refusing to exercise his power to procure repayment of the LSH Loan or to return the shares in New Century to him fails. 

(9)  LL’s claim that AYK is holding all the shares in 7000 Limited and 7000 Limited is holding Raton Property on trust for LL is not established. 

(10)  LL’s claim that the 5 Number Companies to AYK constituted a “fraud, theft and/or deceit” fails. 

(11)  Yau did not owe the alleged or any duty to LL.  In any event, the alleged loss was not caused by the breach of duties on the part of Yau.

142.  LL’s counterclaim is dismissed. 

143.  As regards AYK’s primary claim for specific performance of the Agreement, it has not been suggested by Mr Sit that there is any matter which renders specific performance to become impossible or inappropriate.  It is appropriate to make an order that the Agreement be specifically performed and carried into execution. 

144.  In view of the time gap between the date of the Agreement and this Judgment during which both parties have made repayments on the mortgage loans in respect of the properties concerned and have benefitted from the use of the properties or received rental income generated by the properties under their respective control, I order an account to be taken of the rents and profits received by AYK and LL (or by any other persons or entities on their behalf or by their order) in respect of the properties required to be transferred under the Agreement, and the amounts of mortgage loans in respect of the properties repaid by them. 

145.  I direct the parties to try to agree on the directions on the taking of account and submit the same to the Court within 14 days of this Judgment.  If no agreement is reached, AYK and LL do lodge their respective proposed directions together with explanatory submissions within 7 days thereafter. 

146.  The parties be at liberty to apply to the Court for the purpose of executing or carrying into effect the terms of Order and for directions on the account.   

147.  As for costs, I make a costs order nisi that LL do pay the costs of and occasioned by the 2 actions to AYK and Yau (in respect of HCA 2473/2014) on a party and party basis, to be taxed if not agreed.  This reflects the fact that:

(1)  AYK succeeds in his primary claim.  Although AYK fails in his alternative claim, not much time and costs have been used in the claim. 

(2)  LL fails in all the issues raised in his defence in HCA 2464/2014 and his claim in HCA 2473/2014 (i.e. the counterclaim in the consolidated action).