WONG SEE LUNG v. HUANG HUA JIANG AND OTHERS

HCA 2067/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2067 OF 2009

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Background

1.  The plaintiff was the registered owner of a duplex flat on the 51^st and 52^nd floor of Tower 8, Park Avenue in Kowloon (“the Property”).  He and his family had been residing at the Property since its purchase in 2003.  He plaintiff is only educated to the level of primary three in the PRC.  He does not speak, read or write English.

2.  The 1^st defendant is a personal acquaintance of the plaintiff.  He had borrowed money from the plaintiff in rather substantial amounts and had duly repaid them.  This generated trust and confidence on the part of the plaintiff.  In 2006, the 1^st defendant invited the plaintiff to invest in a PRC real estate project called the Sun Plaza “太陽廣場” in Wuzhou “梧州” of Guangxi “廣西” (“Sun Plaza”). The said project was owned by a PRC company named 梧州明興房地產發展有限公司 (“Wuzhou Ming Hing”). The plaintiff and the 1^st defendant agreed that their investment venture would be conducted through the 2^nd defendant as the corporate vehicle.  The 2^nd defendant was thus incorporated.

3.  The 2^nd defendant was incorporated in Hong Kong with an issued share capital of HK$1 million at HK$1 per share.   On 13 December 2006, the plaintiff became the 30% shareholder, the 1^st defendant held 60% and another person Mr Kevin Lee held the remaining 10%.  The plaintiff and the 1^st defendant were the first directors of the 2^nd defendant until 19 April 2007.  As of this date, Kevin Lee transferred his 10% shareholding to the 1^st defendant who then became the 70% majority shareholder.  According to company registration records, the plaintiff ceased to be a director on that date and the 1^st defendant became the sole director of the 2^nd defendant.

4.  The major events in factual dispute happened between 13 December 2006 and 14 April 2007.  Parties also put in extensive evidence as to subsequent events which are in my view not germane to the resolution of these proceedings as I shall explain hereunder.

The plaintiff’s case

5.  It is the plaintiff’s case and his evidence that in or about December 2006, he intimated to the 1^st defendant that he was desirous of selling the Property.  The 1^st defendant expressed interest in buying.  After negotiation, the plaintiff was in principle prepared to sell the Property to the 1^st defendant for a consideration of HK$22 million.

6.  The 1^st defendant however said that he was tight in cash and that he had already borrowed HK$12 million from the 3^rd defendant. The 3^rd defendant is in fact the person‑in‑control of the 4^th defendant which is a registered moneylender carrying on business in Hong Kong. 

7.  The 1^st defendant said he wanted the plaintiff to “轉借” the Property so that it would become under the name of the 2^nd defendant so as to facilitate the 1^st defendant in raising funds from the bank to settle his debts towards the 3^rd defendant.  The 1^st defendant promised that once his cash flow improved, he would proceed with the sale and purchase of the Property and that the purchase price would be settled within two to three months.  The 1^st defendant also said that prior to fully settling the purchase price, the plaintiff could continue to live in the Property.

8.  The plaintiff was agreeable to this arrangement.  The two parties thus entered into a handwritten Chinese agreement on 22 December 2006 at a meeting that took place in a hotel room occupied by the 1^st defendant (“the Chinese Agreement”).  I shall set out the entirety of the Chinese Agreement:

「 買賣協議書

賣方 :王思龍 (簡稱甲方)

買方 :黃華江 (簡稱乙方)

經雙方洽談，甲方同意向乙方出售香港柏景灣八座51、52層C單位達成以下協議：

(一) 甲方出讓該物業價格定於貳仟貳佰萬港幣，所有經費由乙方負責。(轉入中國礦產資源開發控股有限公司)

(二) 乙方付首期款項壹仟貳佰萬元，並於十五工作日付清，餘款三個月內付清。

(三) 該物業尚未付清前，甲方繼續使用，不交拮[吉]。

(四) 此交易比較特殊，乙方同意用對應資產作擔保。

(五)甲方在律師樓簽下所有文件，乙方當日欠甲方貳仟貳佰萬港幣，付款後減除。

(六) 此協議是最終協議，雙方對外所應訂的協議是為了配合交易合同。

甲方：王思龍  乙方：黃華江

二零零六年十二月二十二日於香港」

9.  A few days after 22 December 2006, the plaintiff attended the office of the 4^th defendant.  In the presence of the 1^st and 3^rd defendants (and no one else), he was asked to and did execute a pile of documents in English which he did not understand.  It is the plaintiff’s case that he signed those documents under the misrepresentations of the 1^st and 3^rd defendants. He said it was a case of fraud in which all 4 defendants participated. The plaintiff said he was misled into signing the documents in the following ways:

(1) The 3^rd defendant first asked the plaintiff whether he had agreed with the 1^st defendant on the sale and purchase of the Property.  The plaintiff answered in the affirmative.  The 3^rd defendant then said they could proceed to signing of documents.

(2) The 3^rd defendant then showed him a pile of documents in English which were stuck with labels at various places.  The 3^rd defendant did not explain the contents of the documents.  Neither did the plaintiff understand their contents.

(3) In the process, the 3^rd defendant turned to various pages and asked the plaintiff to sign.  The plaintiff did accordingly.

(4) After signing a few pages, the plaintiff noticed on one page the figure of HK$100,000.  The plaintiff paused to ask the 3^rd defendant what it was referring to.  The 3^rd defendant said it was about a deposit of HK$100,000.  The plaintiff told him that he had not received any deposit.  The 3^rd defendant then said it was just a matter of formality and that it was necessary to reflect the payment and receipt of a deposit.

(5) Relying on what the 3^rd defendant said, the plaintiff proceeded to sign the remaining documents.  The plaintiff thought he was signing “preliminary agreement and acknowledging receipt of first deposit” (簽署初步協議文件及收小訂).  He was not aware that amongst the documents he signed were:

(i) a formal sale and purchase agreement which stated that he was obliged to deliver vacant possession;

(ii) an assignment of the Property acknowledging that he had already received the entire purchase consideration; and

(iii) two acknowledgments of receipt stating that he had already received the balance of purchase price of the Property.

(6) Throughout the incident, the 1^st defendant did not inform the plaintiff that the documents which he was asked by the 3^rd defendant to execute did not represent the true situation and that they were at variance with the terms of the Chinese Agreement.

(7) Throughout the incident, no solicitors were present.  No one apart from the 1^st and 3^rd defendants was present.  Save and except what the 3^rd defendant represented above, no one explained the contents of the documents to the plaintiff.

(8) In fact, the plaintiff had never instructed any solicitors to represent him in the transaction.  He did not attend any solicitors’ office at all in December 2006 and January 2007.

10.  According to the plaintiff’s case, it was subsequently discovered in 2009 that amongst the documents that he executed on that occasion were the followings:

(1) A purported Formal Sale and Purchase Agreement in respect of the Property between the plaintiff as Vendor and the 2^nd defendant as purchaser at a sale price of HK$20,000,000 (“the S&P Agreement”)[1];

(2) A purported Deed of Assignment of the Property from the plaintiff to the 2^nd defendant (“the Assignment”)[2].

(3) A purported authorization letter from the plaintiff to Bank of China (“the Authorization Letter”) seeking to redeem then existing mortgage (“BOC Mortgage”)[3].

(4) Two purported acknowledgments of receipt of a deposit of HK$100,000 and the balance of purchase price of HK$19,900,000 respectively[4].

(5) A purported Minutes of Board of Directors of the 2^nd defendant in respect of a meeting held on 22 December 2006[5] resolving that the 2^nd defendant shall purchase the Property and that the 1^st defendant be authorized to execute all required documents.

(6) A purported Resolution of the Board of Directors of the 2^nd defendant passed on 22 December 2006[6] resolving, inter alia:

(i) that the 2^nd defendant do obtain a loan of HK$12 million from the 4^th defendant;

(ii) that the 2^nd defendant requested the 4^th defendant to make the HK$12 million payable to the 1^st defendant; and

(iii) that the 1^st defendant be authorized to execute the loan agreement and all other ancillary documents (which would include a first legal charge of the Property in favour of the 4^th defendant).

(Collectively referred to as “the Executed Documents”.)

11.  The S&P Agreement was in English, dated 22 December 2006 and registered with the Land Registry under Memorial No 07012201660027.  It was prepared by Tung, Ng, Tse & Heung (“TNTH”) as solicitors for the Vendor.  It bore two signatures of the plaintiff as Vendor (one as execution of the agreement and the other as acknowledging the receipt of a deposit of HK$100,000 prior to 22 December 2006).  It also bore two signatures of a solicitor from TNTH, namely Mr Yau Chap Yin (“Mr Yau”) attesting to the fact that the plaintiff executed the S&P Agreement in his presence and that he had duly interpreted the S&P Agreement to the plaintiff.

12.  The Assignment was in English, dated 3 January 2006 and registered with the Land Registry under Memorial No 07012201660034.  It was prepared by Quan & Co as solicitors for the Purchaser.  It bore one signature of the plaintiff as Vendor.  It also bore two signatures of Mr Yau attesting to the fact that the plaintiff executed the Assignment in his presence and that he had duly interpreted the Assignment to the plaintiff.

13.  The Authorization Letter was in English dated 22 December 2006.  It bore one signature of the plaintiff.  This letter informed the bank of his intention to redeem the BOC Mortgage and to instruct TNTH to prepare the discharge.  The bank was also asked to forward the title deeds of the Property to TNTH and to inform them of the amount needed for redemption.

14.  The two acknowledgements of receipt were in English and both dated 22 December 2006.  Each bore one signature of the plaintiff.  Both were addressed to TNTH and stated the plaintiff’s confirmation that he had received the respective sums “from [the 2^nd defendant] direct”.

15.  The Minutes of Meeting and written Resolution of the 2^nd defendant were also typed in English with various details handwritten in English.  Each bore a signature of the plaintiff.

16.  The plaintiff said that after the incident at the 4^th defendant’s office, he and his family continued to live in the Property.  He had asked the 1^st defendant why there was such delay in completion.  The 1^st defendant said that his cash flow problem had not improved.  In order to show his sincerity, the 1^st defendant issued three post‑dated cheques in 2007 to the plaintiff which were endorsed at their back with these words: “此款是借款王思龍”; “此款還借款” and “此款還樓款” respectively. The 1^st defendant asked the plaintiff not to present the cheques for payment until he received notification from the 1^st defendant. Since the 1^st defendant repeatedly said that his cash flow condition did not improve, the plaintiff did not present the cheques for payment.

17.  In the meantime, unbeknown to the plaintiff, the Property was assigned to the 2^nd defendant on 3 January 2007.  The conveyance proceeded on the basis that the 2^nd defendant had paid and the plaintiff had received the entire purchase price.  Although on the face of the documents, vacant possession had to be delivered upon completion, as a matter of fact, the plaintiff continued to be in possession and no one demanded him to do otherwise. 

18.  By a first legal charge also dated 3 January 2007, the 2^nd defendant as beneficial owner of the Property mortgaged the same to the 4^th defendant to secure a credit facility of HK$12 million granted by the 4^th defendant to the 2^nd defendant (“Legal Charge to Bectic”).  The facility was based on a facility letter dated 20 December 2006[7].

19.  Then on 26 March 2007, the 2^nd defendant entered into a second mortgage in favour of the 4^th defendant to secure another loan of HK$2 million (“the March Second Mortgage”).  

20.  On 10 July 2007, the Legal Charge to Bectic and the March Second Mortgage was discharged and replaced by a first legal charge made between the 2^nd defendant as mortgagor and Chong Hing Bank Limited as mortgagee (“Chong Hing Legal Charge”). Under the Chong Hing Legal Charge, the 2^nd defendant obtained a mortgage loan of HK$12 million.   The entire sum obtained was used to partially repay the debts owing to the 4^th defendant.  The remaining debt was re-structured as a new loan and became secured by a new second mortgage executed by the 2^nd defendant on 10 July 2007 in favour of the 4^th defendant (“the July Second Mortgage”).  

21.  On 25 July 2007, the 3^rd defendant and one Mr Teng Kui Ming were each allotted with 750,000 shares in the 2^nd defendant. Both Mr Teng and the 3^rd defendant were made directors of the 2^nd defendant in addition to the 1^st defendant. The board was then constituted by three directors.  As for percentages in shareholding, they became: the 1^st defendant (28%), the 3^rd defendant (30%), Mr Teng (30%) and the plaintiff (12%).  

22.  In or around 2008, the 1^st defendant was charged and detained for criminal offences relating to fraud in the PRC and was eventually sentenced to life imprisonment for fraud in or about September 2009.  In the meantime, on 30 May 2008, the 3^rd defendant became the sole director of the 2^nd defendant.  On 17 June 2008, the 1^st defendant and Mr Teng transferred all their shares to the 3^rd defendant who then became a shareholder of 88% in the 2^nd defendant.  Throughout, the plaintiff remained in possession of the Property.

23.  After the 1^st defendant’s arrest, it appeared to the plaintiff that the 3^rd defendant began representing the 2^nd defendant in the Sun Plaza project.  The plaintiff thus reminded the 3^rd defendant that neither the 1^st defendant nor the 2^nd defendant had paid for the purchase price of the Property.  The 3^rd defendant then promised the plaintiff that the 2^nd defendant would in due course pay him the purchase price and in the meantime, the plaintiff and his family could remain living in the Property. 

24.  On or about 9 July 2009, whilst the plaintiff and his ex‑wife were still residing at the Property, the latter received a bundle of court papers relating to HCA 1550/2009.  That was an action instituted by the 2^nd defendant against the plaintiff for recovery of possession of the Property.  According to the plaintiff, he called the 3^rd defendant for clarification but was told by the 3^rd defendant that the court proceedings were only instituted as a matter of formality.  The 3^rd defendant asked the plaintiff to ignore the proceedings which he did.

25.  However, the 2^nd defendant obtained a default judgment in HCA1550/2009 against the plaintiff on 21 September 2009.  The judgment was based on a statement of claim which alleged that the plaintiff was an employee of the 2^nd defendant and that he was granted a licence to use and occupy the Property.  It further alleged that the plaintiff ceased to be an employee on 19 April 2007 and hence the licence was terminated and the 2^nd defendant was entitled to recover possession of the Property.

26.  The plaintiff said that when he received a court order, he confronted the 3^rd defendant who then resiled from what he previously said.  The 3^rd defendant said he could no longer afford the monthly installments of the Chong Hing Legal Charge.  The 3^rd defendant claimed to have helped the 2^nd defendant by paying over one million dollars as mortgage installments to Chong Hing Bank.  He required the plaintiff to pay rent if he wished to remain in the Property.

27.  It was at this point that the plaintiff sought legal advice and discovered the fraud on him.  An application was made to set aside the default judgment in HCA1550/2009.  The application was successful and the default judgment was set aside on 19 April 2010.

28.  Then on 25 October 2010, Chong Hing Bank issued an Originating Summons in HCMP 2112/2010 claiming against the 2^nd defendant for payment of all monies due under the Chong Hing Legal Charge and for vacant possession of the Property.  The plaintiff and his ex‑wife joined as interest parties but eventually failed to resist Chong Hing Bank’s claim for possession.  Compelled by a court order, the plaintiff handed over vacant possession of the Property to Chong Hing Bank on 14 March 2011.  The Property was eventually sold by Chong Hing Bank on 1 March 2013 at the price of HK$32,500,000.  After deducting what was due to Chong Hing Bank and all incidental costs and expenses, there was a remaining balance of HK$18,919,721.81 which Chong Hing Bank paid into court on 23 October 2013[8].

The plaintiff’s claims

29.  The Amended Statement of Claim included various prayers for relief which have been rendered inapt consequent upon the mortgagee sale of the Property pursuant to a court order granted in HCMP2112/2009.  At the start of the trial, counsel for the plaintiff restructured the plaintiff’s claims as follows:

(1) a declaration against the 2^nd and 4^th defendants that the July Second Mortgage is null and void as against the plaintiff;

(2) damages for fraud against the 1^st and 3^rd defendants;

(3) alternatively, damages for misrepresentation against the 1^st, 2^nd, 3^rd and 4^th defendants;

(4) a declaration that the plaintiff is entitled to the funds lodged into court by Chong Hing Bank;

(5) alternatively, damages for breach of the Chinese Agreement (or damages in lieu of specific performance) against the 1^st defendant; and

(6) alternatively, damages for breach of the S&P Agreement (or damages in lieu of specific performance) against the 2^nd defendant.

The defence case

30.  Default judgment had already been entered against the 1^st defendant. The 2^nd defendant called no witnesses and essentially argued that the misrepresentations or deceit practiced by the 1st defendant could not be attributed to the 2^nd defendant. 

31.  The 3^rd and 4^th defendants ran a joint defence.  The protagonist was the 3^rd defendant.  His case and his evidence was that he was introduced to the 1^st defendant in mid‑December 2006. The introducer was Mr Chan Chun Choi who was a chairman of a listed company in Hong Kong.  The 3^rd defendant was told that the 1^st defendant would like to borrow money from the 4^th defendant and could use a Hong Kong property as security.

32.  On or about 20 December 2006, the plaintiff and the 1^st defendant attended the office of the 4^th defendant for the purpose of discussing the details of a loan using the Property as security.  Prior to this meeting, the 3^rd defendant had not met with the plaintiff. During the meeting, the 3^rd defendant was told by the plaintiff and the 1^st defendant as to the followings:

(i) the plaintiff was the owner of the Property;

(ii) the Property was to be purchased by the 2^nd defendant which would be the borrower;

(iii) the plaintiff and the 1^st defendant were the directors and shareholders of the 2^nd defendant;

(iv) the loan required was HK$12 million which was to be drawn down in tranches; and

(v) the transaction had to be proceeded on urgent basis.

33.  The 4^th defendant thus issued a letter dated 20 December 2006[9] setting out the terms and conditions of the proposed facility of HK$12 million to the 2^nd defendant.  The proposed facility was to be backed by two securities: (1) an all‑monies legal charge of the Property; and (2) a personal guarantee of the 1^st defendant.  In the said letter, it was stated that the 2^nd defendant was required to arrange for its board of directors to pass a resolution to approve the terms of the loan.

34.  On 22 December 2006, the plaintiff and the 1^st defendant again attended the office of the 4^th defendant and they executed the following documents:

(i) a Minutes of Meeting of the board of directors of the 2^nd defendant regarding the purchase of the Property by the 2^nd defendant from the plaintiff;

(ii) a board resolution of the 2^nd defendant regarding the loan; and

(iii) a Memorandum under section 18 of the Money Lender Ordinance that the 2^nd defendant borrowed HK$2 million from the 4^th defendant.

35.  It is the 3^rd and 4^th defendants’ case that the plaintiff only executed the above three documents at the meeting on 22 December 2006.  The 3^rd defendant claimed that the 1^st defendant and the plaintiff also told him that prior to the meeting, they had executed a sale and purchase Agreement regarding the Property in the presence of a solicitor of TNTH namely Mr Yau.  They told the 3^rd defendant that the purchase consideration was HK$20 million.  

36.  On 3 January 2007, the 2^nd defendant became the registered and beneficial owner of the Property and was entitled to possession.  On the security of the Legal Charge to Bectic, the 4^th defendant granted the following loans in the total sum of HK$12 million to the 2^nd defendant:

(1) Loan No 2244 in the sum of HK$2 million on 22 December 2006.

(2) Loan No 2246 in the sum of HK$2 million on 23 December 2006.

(3) Loan No 2248 in the sum of HK$2 million on 30 December 2006.

(4) Loan No 2249 in the sum of HK$1,500,000 on 5 January 2007.

(5) Loan No 2251 in the sum of HK$4,500,000 on 20 January 2007.

37.  The 3^rd defendant’s case is that the S&P Agreement, the Assignment, and the two acknowledgment of receipts were not signed by the plaintiff at the 4^th defendant’s office on 22 December 2006.  In fact, the S&P Agreement was signed and witnessed by Mr Yau at the office of TNTH on 22 December 2006.  The Assignment was signed and witnessed by Mr Yau at the office of TNTH on 3 January 2007.  Both documents were interpreted by Mr Yau to the plaintiff who signed them under his free will.  In other words, the 3^rd defendant denies that he had made the misrepresentations as alleged by the plaintiff. The 4^th defendant ran the same case.  Both the 3^rd and 4^th defendants denied having defrauded the plaintiff.  The 3^rd defendant admitted that he became a shareholder of the 2^nd defendant on 25 July 2007 because he wanted to invest in the Sun Plaza project.  He said it was a personal investment that had nothing to do with the 4^th defendant or the above loan transactions.  He also refuted the plaintiff’s assertions as set out in paragraphs 24 and 26 above.

Analysis

38.  According to the plaintiff’s case, he only executed documents at the office of the 4^th defendant on a day towards the end of December 2006.  In fact, it was a few days after 22^nd December 2006, the day he executed the Chinese Agreement.  More importantly, he had never engaged TNTH as his solicitors and never went up to the office of TNTH, let alone executing documents there.  He did not meet Mr Yau at all.  He did not execute any document in his presence.

39.  On the other hand, the case of the 3^rd and 4^th defendants is based on their assertion that the S&P Agreement and the Assignment were in truth executed by the plaintiff in the presence of Mr Yau, having been interpreted their contents.  They were executed respectively on 22 December 2006 and 3 January 2007. 

40.  In my view, a finding as to whether the S&P Agreement and the Assignment were in truth executed in the manner as appearing on the face of those documents is pivotal to my assessment of the veracity of the parties’ respective cases.  Hence, upon my own motion and assented to by counsel for all parties, I issued a subpoena to Mr Yau.  At the same time, I issued a subpoena duces tecum for the production by TNTH of the entire original conveyancing file relating to the Property.  These measures resulted in rather shocking revelation as I shall explain hereunder.

Execution of the S&P Agreement

41.  Mr Yau was a solicitor working in TNTH in December 2006.  He is now working as a consultant in Raymond Cheung & Chan.  He began by explaining that TNTH was a medium‑sized firm.  At the material time, three persons were involved in this file concerning the Property.  Mr Valent Tse was the partner who handled the client.  Mr Yau was responsible for the professional aspects. The opening of the file and preparation of correspondence were handled by an experienced clerk named Isabella Au.

42.  One day, Isabella went to his room with a telephone on hold.  She asked whether a certain date was convenient to him for arranging a client to come up for the signing of a sale and purchase agreement.  A date and time was accordingly fixed.  Then over phone, she asked the client to come up to TNTH’s office at the appointed date and time.  The file cover of the conveyancing file[10] indicated that it was opened on 21 December 2006.

43.  Then within one or two days, Isabella took the file to him and said that the client had arrived.  She was with the photocopy of an ID card.  They then moved to a conference room in which Mr Yau found that a Chinese male was already seated there.  That male sat at one end of the room near the door.  Isabella introduced him as Mr Wong See Lung.  Mr Yau then introduced himself as a solicitor surnamed Yau.  According to Mr Yau, that was the first time he handled the file.

44.  Mr Yau sat next to the plaintiff at 90 degrees.  Before sitting down, he checked the original ID card of the plaintiff against the photocopy and also checked his facial appearance.  Mr Yau asked the plaintiff whether he was Wong See Lung. The plaintiff nodded.  Mr Yau then returned the ID card.  At this point, Isabella left the room.  There were then two original copies of the sale and purchase agreement.  Mr Yau placed one copy before himself.  He placed the other before the plaintiff.  Since most important information about the transaction would be contained in the Schedules, Mr Yau began with explaining the Schedules.  He first pointed out the parties’ Chinese names.  He read out the plaintiff’s name and at the same time checked if the typing was correct.  The plaintiff nodded.  Mr Yau noticed that the Purchaser bore a long Chinese name and read it out to the plaintiff.  Mr Yau even commented that the Purchaser bore a long name and it seemed to be carrying on a sizable business.   

45.  Mr Yau then explained that the purchase price was HK$20 million.  He explained that the plaintiff would first receive HK$100,000 and then on completion he would receive HK$19,900,000.  Mr Yau asked whether those were the payment terms.  The plaintiff nodded.  Mr Yau then explained that the completion date would be on or before 31/1/2007 at or before 5 pm and that if it was a Saturday, then by 12 noon.  He explained that completion would be conducted at TNTH with correspondence.  He explained that if formal completion be required, parties may have to meet up at a place to be arranged.  Mr Yau then explained that each party would be paying his own costs.

46.  Most importantly, Mr Yau explained the parcel clause and the plaintiff again nodded.  He explained that the plaintiff had to comply with a DMC and that there was then a mortgage to the bank.  Mr Yau then discovered that the agreement did not contain any estate agency’s name nor any reference to payment of commission.  Mr Yau asked the plaintiff whether it was an “internal transfer”.  On the file, Mr Yau could see that the plaintiff was a shareholder and director of the Purchaser.  Earlier that day, Mr Yau had read through the file quickly.  Furthermore, prior to the opening of the file, Mr Valent Tse had told Mr Yau that it was an “internal transfer”.  Hence, a lot of procedures might not be strictly followed.  Mr Yau understood that many procedures would be simplified.  Mr Yau asked the plaintiff whether it was the case. The plaintiff again nodded.  Mr Yau also asked whether it was correct that there would be no other terms involving handing over of furniture.  The plaintiff again nodded.

47.  Then, Mr Yau briefly explained in gist the more important terms.  Afterwards, he asked the plaintiff if there were questions.  The plaintiff shook his head.  Mr Yau then proceeded to the execution page.  Mr Yau noticed that the Purchaser had already chopped and signed.  He thus asked the plaintiff: “That was your partner, right?”  The plaintiff nodded.  Mr Yau then pointed to various places and asked the plaintiff to sign on the two original copies of the sale and purchase agreement.  Mr Yau said to the plaintiff that since you had received HK$100,000, so he should sign to acknowledge that.  The plaintiff then signed.  The plaintiff signed his name four times, two on each copy.  After the plaintiff signed his name, Mr Yau also signed four times in total on the two original copies.  After the signing of names, Mr Yau asked again if the plaintiff had any question.  The plaintiff again shook his head.

48.  Mr Yau said he would normally explain the procedures involved in the sale of a property. In this case, since it was a case of “selling to oneself”[11], Mr Yau asked the plaintiff whether it was correct that the plaintiff would not be required to move out of the Property.  The plaintiff nodded.  Mr Yau distinctly remembered asking this because if the company allowed the plaintiff to stay on, he could and then it would not be necessary to have settlement account.  Mr Yau asked the plaintiff whether it was correct that there would not be need for settlement account.  The plaintiff again nodded.

49.  Then Mr Yau checked the file to see if there was any omission.  He discovered three sheets of papers.  The first one was the draft Authorization Letter addressed to Bank of China.  The others were the two draft acknowledgments of receipt, one for HK$100,000 and the other for HK$19,900,000.  Mr Yau noted that as for the draft Authorization Letter, it was not dated and the plaintiff had not yet signed.  The plaintiff’s ID card number was also not filled in.  The two draft acknowledgments were dated 22 December 2006 but not yet signed by the plaintiff.  Mr Yau then asked the plaintiff whether he had borrowed from Bank of China.  The plaintiff nodded.  Mr Yau then said:

“You are transferring property to the company, the mortgage would also have to be changed, so you have to apply to redeem the mortgage. This sheet is about writing to Bank of China saying that you authorizes TNTH to redeem the mortgage for you. You sign here.”

Mr Yau also reminded the plaintiff that he had to sign in the same way as he did before the bank.  He nodded and signed in the same way on the Authorization Letter.   

50.  Mr Yau then said to the plaintiff:

“Since it is an internal transfer, the money issue would be handled between yourselves.”

The plaintiff nodded.  Mr Yau then said:

“I had explained to you that you had received HK$100,000. The balance of HK$19,900,000 will be received by you on completion. Yet, both sums of money would not be transacted through our solicitor firm. You and the Purchaser have to deal directly between yourselves.”

The plaintiff again nodded.  Mr Yau then asked the plaintiff to sign on the two acknowledgments of receipt which the plaintiff did.  After signing, Mr Yau asked the plaintiff to wait. Mr Yau gave the file to Isabella to see if there was anything missing.  Isabella found nothing missing.  Accordingly, Mr Yau asked the plaintiff to leave.

51.  Mr Yau also supplemented that in the course of this first meeting with the plaintiff, he also discovered a Bank of China Notice for Repayment Schedule in the file[12] bearing the a correspondence address of the plaintiff at “Rm 4, 8/F Chong Fat Bldg., 266‑268 Cheung Sha Wan Rd., Shamshuipo”.  He also saw a fax copy of the draft Assignment of the Property[13].  Mr Yau therefore said to the plaintiff:

“After completion, the property would belong to others, but you need to put in a new address. Can I use this address [pointing to the Samshuipo address] as your new address?”

The plaintiff nodded.  Mr Yau therefore wrote the Shamshuipo address on the draft Assignment fax copy.

52.  As to the time of the aforesaid meeting on 22 December 2006, Mr Yau said that it should be sometime in the afternoon.  Mr Yau said that he only received the fax of draft Assignment after 2:29 pm.  Hence, he must have met the plaintiff later than that in the afternoon.

53.  As to the second meeting with the plaintiff, Mr Yau said that it should be in the beginning of 2007.  It was for the purpose of executing the Assignment. Again, it was Isabella who arranged the plaintiff to attend TNTH’s office.  The plaintiff sat at the same place in the conference room.  Mr Yau checked the plaintiff’s ID card again.  Since there was only one original copy of the Assignment, Mr Yau placed it in front to the plaintiff and explained that it was the assignment of the Property.  He explained to the plaintiff the identity of the Purchaser and that the plaintiff was selling at a consideration of HK$20 million.  Mr Yau turned to the parcel clause[14] and explained again to the plaintiff.  He then explained to the plaintiff the gist of the Assignment.  When Mr Yau was holding the plaintiff’s ID card, he checked again and said: “Wong See Lung, your ID card is xxxxxxx.”  The plaintiff nodded.  He also told the plaintiff that the Purchaser had already chopped and signed.  Mr Yau then said: “If there is no problem, you can sign.”  The plaintiff nodded and then signed his name.  There was only one assignment, so he signed only once. 

54.  Mr Yau discovered a letter dated 4 January 2007 in the file from TNTH to Bank of China which stated that a cashier order in the sum of HK$532,194.80 was attached for the redemption of the mortgage.  He also found the original cashier order in the file.  After the plaintiff had executed the Assignment, Mr Yau showed the plaintiff the cashier order.  He explained that he was informed by the bank that the plaintiff owed the bank HK$532,194.80.  He asked the plaintiff if that was correct.  The plaintiff nodded.  Mr Yau said to the plaintiff:

“If that is not correct, don’t come to us, go directly to the bank. If the bank discovers any error, e.g. that it has received more, it would be returned to the mortgage account. So you should not cancel the account yet.”

Mr Yau also explained that the mortgage loan had been repaid and there was no need for paying further mortgage installment. The plaintiff again nodded.  Mr Yau then repeated that there would be no handling of keys and settlement accounts.  He asked the plaintiff to handle those matters between themselves.  The plaintiff again nodded.  Mr Yau told the plaintiff that no money had changed hands through TNTH.  The plaintiff again nodded.  Mr Yau asked the plaintiff if there were questions.  The plaintiff shook his head.  Since there was nothing else to be done, Mr Yau passed the file to Isabella and the plaintiff was asked to leave.

55.  I set out the evidence of Mr Yau in such detail for two reasons.  Firstly, he was a witness subpoenaed on the court’s own motion and hence there is no witness statement from him.  Secondly, I wish to point out that Mr Yau was apparently able to describe two rather uneventful encounters with the plaintiff in such graphic details.  I was rather surprised.  The event took place over seven years during which Mr Yau could easily have handled over several hundreds of conveyancing files.  Although prior to the giving of his evidence I had directed the plaintiff’s solicitors to provide Mr Yau with a copy of the entire conveyancing file so that he could refresh his memory, still I cannot cease to be amazed by the extent of details which Mr Yau claimed to be able to remember.

56.  When cross‑examined by counsel for the plaintiff, Mr Yau insisted that his evidence was based on his personal recollection rather than through a re‑construction of the documents.  Mr Yau was specifically asked about how he appended his signatures on the execution page of the S&P Agreement[15].  He said that he immediately signed his names after the plaintiff finished his signing.  He said that the same happened to the signing of his names on the Assignment.  Furthermore, he had not handed over either of the two documents to anyone between the time after the plaintiff signed his names and before he himself signed on the respective documents.

57.  The fallacy of Mr Yau’s evidence was exposed when he was cross-examined on Exhibits C4 and C7.   Both exhibits were taken from the TNTH conveyancing file.  Exhibit C4 is an original copy of a draft S&P Agreement of the Property.  It is to be compared with the copy of the S&P Agreement registered with Land Registry[16].  Exhibit C4 is undated.  On page 18 of Exhibit C4, there were two original signatures of the plaintiff made by a black ball‑pen. They were however not accompanied by signatures of Mr Yau or the chops of Mr Yau and TNTH.  Whereas, in the registered copy of the S&P Agreement, the signatures of the plaintiff were accompanied by two signatures of Mr Yau, his name chop and that of TNTH purporting to indicate that the plaintiff executed the S&P Agreement in the presence of Mr Yau, after Mr Yau had interpreted the contents to the plaintiff.

58.  Exhibit C7 is a single sheet of paper bearing an original signature of the plaintiff made by a black ball‑pen.  It is an execution page of a deed.  The plaintiff’s signature is not accompanied by any signature of Mr Yau or the chops of Mr Yau and TNTH.  Exhibit C7 is to be compared with the execution page of the Assignment registered with the Land Registry[17].  In it, the plaintiff’s signature was accompanied by two signatures of Mr Yau, his name chop and that of TNTH purporting to indicate that the plaintiff executed the Assignment in the presence of Mr Yau, after Mr Yau had interpreted the contents to the plaintiff.

59.  Counsel for the plaintiff cross‑examined Mr Yau initially by showing him a photocopy of Exhibit C4 which had been inserted into the trial bundle[18].  He was then asked about a photocopy of Exhibit C7 which had also been inserted into the trial bundle[19].  It was then the physical Exhibits C4 and C7 were shown to Mr Yau.  The following is my record of the cross‑examination:

“Mr Chan: Please look at D2/683-702, they were copied from the conveyancing file. Have you seen this before?

Mr Yau: No.

Mr Chan: When did you first see it?

Mr Yau: It should be in the copy of the file you provided.

Mr Chan: How did it come about?

Mr Yau: I do not know.

Mr Chan: Have you seen this document in the course of the transaction in 2006-2007?

Mr Yau: In one minute’s time, the document will appear like this: when the plaintiff had signed but when I have not yet signed.

Mr Chan: Can you explain the existence of this document?

Mr Yau: I do not know personally.

Court: During this minute, had you ever handed over the S&P Agreement to anyone.

Mr Yau: Never.

Mr Chan: Look at D2/715, when was the first time you saw it?

Mr Yau: After the plaintiff signed and before I signed, it would appear like this. It only existed for 1 minute. During that minute, I had never handed the Assignment to anyone. I saw him signed and then I signed.

Mr Chan: How did it exist?

Mr Yau: I do not know.

Court: Look at Exhibit C-4, this is the original of D2/683-702, how could this exist now, can you explain?

Mr Yau: I do not know.

Court: Look at Exhibit C-7, this is the original of D2/715, how could this exist now, can you explain?

Mr Yau: I do not know.”

60.  The very existence of Exhibits C4 and C7 in the TNTH conveyancing file is wholly incompatible with the evidence of Mr Yau.  Mr Yau could not have been telling the truth to this Court in relation to the execution of the S&P Agreement and the Assignment.  On the contrary, the existence of Exhibits C4 and C7 provides potent corroboration of the plaintiff’s evidence that he did not execute any of the Executed Documents in the presence of Mr Yau or indeed any lawyer.  It is most likely that two duplicates of each of Exhibits C4 and C7 were amongst the pile of paper which the 3^rd defendant asked the plaintiff to sign at the office of the 4^th defendant. They were then given to TNTH for “processing”.  One duplicate of Exhibit C4 was dated by handwriting to 22 December 2006, signed by Mr Yau and placed with his name chop and that of TNTH.  It was then given to the Quan & Co for stamping and registration.  Mr Yau did not even bother to “perfect” the remaining Exhibit C4.  Hence, it remains in the conveyancing file up to now.  As for Exhibit C7, it is most likely that one duplicate was similarly processed by Mr Yau and then used by inserting it as the execution page of the Assignment, the page numbering appeared to have be type‑written.  It was again provided to Quan & Co for registration. The remaining duplicate has been left in the conveyancing file until now.

61.  In the light of this dire contradiction between the evidence of Mr Yau and the real contemporaneous documentary evidence located in the conveyancing file of TNTH, it is unnecessary for me to dwell into the many other incredible and unsatisfactory aspects of Mr Yau’s evidence.  I will just high‑light a few salient examples:

(1) It was pointed out to Mr Yau that the conveyancing file contained no contact details of the plaintiff.  On the contrary, the file cover referred to “Bectic Ms Chow 2528 3733”. Ms Chow is the wife of the 3^rd defendant working in the 4^th defendant. The said telephone number was that of the 4^th defendant at the material time.  Mr Yau claimed that he did not know the 3^rd and the 4^th defendant at all.  His evidence was however contradicted by that of the 3^rd defendant who said that he and the 4^th defendant had previous experience of engaging TNTH and he knew solicitor Mr Yau of TNTH.  Mr Yau’s evidence was also inconsistent with a handwritten note found in the conveyancing file[20].  Mr Yau admitted that the note was made by him.  In the note, he wrote “Mr Pang insist our letter to Wat Hon Wah solicitor…”.  It is also pertinent to note that Exhibit C5 shows that the 4^th defendant had directly faxed the draft Assignment of the Property to Mr Yau on 22 December 2006[21].  After Mr Yau admittedly made amendments on the draft, the amended draft was faxed to “2907 6698” which was admitted by the 3^rd defendant to be his personal fax number.  The said fax number was also written with a ball‑pen indicating that it was the amended draft that was faxed to “2907 6698”. Mr Yau clearly had interactions with both the 3^rd and 4^th defendants which he deliberately avoided acknowledging.

(2) Mr Yau’s evidence was inconsistent with a number of correspondences found in the TNTH conveyancing file and his purported explanations were incredible:

(i) Mr Yau admitted signing a letter dated 29 December 2006[22] from TNTH to Quan & Co.  The contents showed that TNTH was sending over a draft S&P Agreement for the latter’s approval.  It also talked about “nothing is binding until the formal Agreement for Sale and Purchase is duly signed by our respective client”.  Yet according to the oral evidence of Mr Yau, the S&P Agreement was already executed by the Purchaser by the time he asked the plaintiff to execute it on 22 December 2006.  It must have been apparent to Mr Yau that the contents of this letter were utterly false and incorrect.  In an attempt to provide an excuse, Mr Yau first claimed that the letter was a post‑record of what were actually done.  When further pursued in cross‑examination, he said that Isabella urgently gave him the letter for signature.  She did not give him opportunity to change the letter.  In fact she said she did not want him to change.  Then he agreed to sign.  He also said that he would sign unless he finds the contents of a letter “outrageous”.  In my view, the attitude of Mr Yau is indeed outrageous.  Such an explanation is wholly disingenuous.  It displays a total lack of professionalism and credibility on the part of Mr Yau.

(ii) By a letter dated 2 January 2007[23], Quan & Co provide draft completion undertakings for TNTH’s approval.  By a reply letter dated 3 January 2007[24], Mr Yau admitted that he signed and approved the undertakings.  The opening paragraph of the undertakings stated: “On behalf of our client the Purchaser and in order to complete the purchase of [the Property] today, we enclose herewith the cheque(s)/cashier orders(s) for the total sum of HK$19,900,000.00 being the balance of purchase price…”.  The said cheque/cashier order was said to have been sent upon certain undertakings. This would have been transparently false according to Mr Yau’s oral evidence.  Yet, when examined by counsel for the plaintiff, Mr Yau claimed that he was not aware of the financial arrangement and the aforesaid appeared correct to him.  This answer was wholly incomprehensible.

(iii) The same letter set out a number of undertakings including sending of keys, apportionment account and delivery of vacant possession[25].  They would have been wholly inapt according to Mr Yau’s evidence.  When asked why he would approve such undertakings, Mr Yau said that they were standard and he was content to leave them there because they could always be changed at any time prior to completion.  His answer defied common sense and made a mockery of the procedure of approving/scrutinizing draft undertakings.  I find that his evidence was contrived and unreal. 

(iv) In fact, Mr Yau displayed similar problems when he was questioned about the contents of the S&P Agreement.  According to his evidence, he duly interpreted the contents to the plaintiff.  The terms of the S&P Agreement stated clearly that vacant possession had to be delivered upon completion and that HK$19,900,000 would be payable by the Purchaser upon completion.  If his evidence were true, the plaintiff would have confirmed to him that he had already received HK$19,900,000 and would stay in possession even after completion.  Nonetheless, there was no attempt to amend the terms of the S&P Agreement.  Mr Yau could only resort to weird and contrived excuses.  In my judgment, all these anomalies point to one and only one conclusion: Mr Yau was acting as a mere rubber stamp.  He would sign his name on any document presented to him irrespective of its truth or falsity just to get the transaction through.

62.  I find that Mr Yau has not given a truthful account of his involvement in this property transaction.  He deliberately put forward an account which he attempted to reconstruct from the photocopy of the conveyancing file provide to him.  All those graphic details were contrived and artificial.  He had woven an entangled web which was impossible to enweave given the discovery of the various physical exhibits in the original conveyancing file of TNTH. 

63.  I have no difficulty in preferring the evidence of the plaintiff who had given his evidence in a straight forward and spontaneous manner throughout.  He was wholly unshaken in cross‑examination.  Although it was pointed out in cross‑examination that he was engaged in some businesses and property transactions and hence with some experience in the business world, I find him generally to be a gullible person.  He appeared too ready to repose trust on people, in particular his business partners.  I find that he did not attend the office of TNTH and he did not meet Mr Yau.  He did not execute documents at TNTH’s office at all.

64.  As for the credibility of the 3^rd defendant, I am not impressed by him at all.  I find him evasive.  He seldom provided direct answer to questions put to him in cross‑examination.  He customarily prevaricated until the court demanded a direct answer to counsel’s question.  He was not forthcoming and straight forward.  At times, when confronted with documents the contents of which called for explanations, he took long pauses to ponder on what would be a better answer to suit his case.

65.  The 3^rd defendant initially provided very little details about his encounters with the plaintiff in his witness statement which have effectively been set out in paragraphs 31 to 37 above.  There are a few important pointers to help me in the assessment of his credibility:

(1) In his witness statement, the 3^rd defendant stated that he had no knowledge of the Chinese Agreement at the material time[26].  Yet, in an earlier affirmation filed on 25 June 2012, the 3^rd defendant said[27]:

“[The plaintiff] together with his now divorced wife Wang Ping and other members of his family had, prior to April 2009, been occupying the Property under a licence granted by [the 2^nd defendant] to him pursuant to an oral agreement in late 2006 between [the plaintiff] and [the 1^st defendant] and the same was reduced into a formal agreement and pursuant to which [the 4^th defendant] provided financing to the said acquisition of [the 2^nd defendant]. Details of which will be further deposed below.” (my emphasis)

The 3^rd defendant’s affirmation then proceeded to refer to the Chinese Agreement[28].  He stated that the 3^rd and 4^th defendants were neither party to the Chinese Agreement nor would it be binding on or enforceable against them.  He did not say that he had no knowledge of the Chinese Agreement prior to the grant of facility by the 4^th defendant to the 2^nd defendant.

(2) I raised this matter with counsel for the 3^rd and 4^th defendants for clarification in the course of the plaintiff’s opening.  He agreed that the reference to the “formal agreement” in the 3^rd defendant’s affirmation must have been a reference to the Chinese Agreement.  It thus seemed that the 3^rd defendant had previously admitted that the 4^th defendant granted the loan of HK$12 million pursuant to the Chinese Agreement, and that the purpose of the loan was for the 2^nd defendant to acquire the Property.  In other words, it was an admission that the 3^rd defendant was aware of the existence of the Chinese Agreement prior to providing finance to the 2^nd defendant.

(3) Yet, in the course of top‑up questions in chief, the 3^rd defendant stated that he had no knowledge of the Chinese Agreement.  He explained that the “formal agreement” mentioned in his affirmation was in fact a reference to the S&P Agreement signed by the plaintiff at TNTH.  The 3^rd defendant was then confronted with the terms of the S&P Agreement which clearly stated that vacant possession would be given upon completion.  There was no reference to the grant of licence in the entire S&P Agreement.  The 3^rd defendant accepted that the contents of the affirmation were interpreted to him before his signing.  The reference to “formal agreement” in his affirmation could not have meant to refer to the S&P Agreement.  The 3^rd defendant could not provide any cogent explanation for this blatant contradiction with his oral evidence.  This episode demonstrated that the 3^rd defendant was dishonestly seeking to wriggle out of a prior admission.

(4) This issue is also linked with the case put forward by the 2^nd defendant in HCA 1550/2009. That was an action instituted by the 2^nd defendant against the plaintiff for recovery of possession of the Property.  The original statement of claim bore a statement of truth signed by the 3^rd defendant as the then sole director of the 2^nd defendant.  It stated:

“3. The [plaintiff] was an employee of the [2^nd defendant] and the [plaintiff] was granted by the [2^nd defendant] a licence to use and occupy the [Property] by virtue of Section 50(6)(d) of the [Landlord and Tenant (Consolidation) Ordinance] whereof Parts II and IV of the Ordinance do not apply to the [Property].

4. It was also implied in the said licence, inter alia, that the [plaintiff] should deliver up possession of the [Property] to the [2^nd defendant] on ceasing to be so employed.

5. The [plaintiff] ceased to be an employee of the [2^nd defendant] on or about 19 April 2007.”

          In cross‑examination, the 3^rd defendant (after much prevarication) eventually accepted that the plaintiff was never an employee of the 2^nd defendant.  The date of 19 April 2007 was merely the date the plaintiff ceased to be a director of the 2^nd defendant. These original paragraphs in the statement of claim were thus false and incorrect.  They were also inconsistent with the affirmation of the 3^rd defendant as aforesaid.  They demonstrated that the 3^rd defendant was prepared to put forward false assertions as and when they suited his interest.

(5) As to what happened on 20 December 2006, the 3^rd defendant stated in cross‑examination that the plaintiff and the 1^st defendant did not come up to the 4^th defendant’s office together.  The 1^st defendant came first.  He then discussed with the 1^st defendant on the grant of a loan.  He also introduced the 1^st defendant to Quan & Co and took him over to Quan & Co’s office which was opposite that of the 4^th defendant. It was later on that the plaintiff came up.  He also discussed the grant of loan with the plaintiff.  He also introduced Mr Valent Tse of TNTH to the plaintiff and asked him to approach Mr Tse.  The 3^rd defendant was then confronted with his previous affirmation which suggested that the plaintiff and the 1^st defendant came to his office together[29].  The 3^rd defendant could not provide cogent explanation for this discrepancy.

(6) As for the event on 22 December 2006, the 3^rd defendant said in cross‑examination that the plaintiff and the 1^st defendant attended the office of the 4^th defendant shortly before or around lunch time.  According to the 3^rd defendant’s version, he was told that they had already went up to TNTH to sign a sale and purchase agreement.  His evidence was in dire contradiction with the evidence of Mr Yau who said that the alleged meeting with the plaintiff definitely took place after 2:29 pm after relying on Exhibit C5 as a reference point.  The evidence of the 3^rd defendant and that of Mr Yau was simply irreconcilable.

(7) In the course of his cross-examination, the 3^rd defendant was at pain to down play the involvement of the 4^th defendant in the sale and purchase of the Property between the plaintiff and the 2^nd defendant. Yet, the active and in fact directing role of the 4^th defendant slowly emerged.  First of all, the 3^rd defendant had to admit that both the vendor’s solicitors and the purchaser’s solicitors were introduced by him.  Secondly, he had to admit that Exhibit C5 was faxed by the 4^th defendant to Mr Yau of TNTH.  This was odd.  One would have expected Quan & Co to be the sending party.  Exhibit C3 also evidenced that TNTH attempted to fax a draft S&P Agreement to the 3^rd defendant’s wife at 10:57 am on 22 December 2006.  There was no reason for so doing.  Thirdly, Exhibit C6 indicated that TNTH requested the 3^rd defendant and his wife to arrange for settlement of the bill of costs in relation to the purported legal services provided to the plaintiff.  The 3^rd defendant could not provide any cogent explanation as to why a lender to the 2^nd defendant would have to pay for the costs of the vendor of the Property.  Fourthly, counsel for the plaintiff pointed out that prior to the commencement of the trial, the defendants had avoided discovery on the issue of who provided the money for the discharge of the BOC mortgage.  It was only on the second day of the trial, at the invitation of this court, that the 3^rd defendant disclosed documents showing that the 4^th defendant was the provider of the funds.  I accept the submission of counsel for the plaintiff that the 3^rd defendant was seeking to hide the controlling role of the 4^th defendant and himself in the entire transaction.

(8) The 3^rd defendant explained that the business of the 4^th defendant was and is lending money upon the security of property: “If the title is clear, the 4^th defendant would lend.”  He told the 1^st defendant on 20 December 2006 that the 4^th defendant would only lend money to the owner of the property.  Yet contrary to such avowed mode of business, and prior to obtaining a Legal Charge over the Property, the 4^th defendant started releasing tranches of the loan as follows:

(i) Loan No 2244 in the sum of HK$2 million on 22 December 2006.

(ii) Loan No 2246 in the sum of HK$2 million on 23 December 2006.

(iii) Loan No 2248 in the sum of HK$2 million on 30 December 2006.

The 3^rd defendant was unable to provide cogent explanation as to why he would allow the 4^th defendant to do so.  Even on his own case, as of 22 December 2006, he was merely toldby the plaintiff and the 1^st defendant that a sale and purchase agreement had been signed.  There was no assurance or guarantee that the sale and purchase would actually be completed.  Consequently, there was no basis to assume that a legal charge could eventually be executed in favour of the 2^nd defendant.  In any attempt to explain this anomaly, the 3^rd defendant said that the 1^st defendant was urgently in need of funds.  In my view, it is most likely that the 3^rd and 4^th defendants were willing to do so because they knew they were in control of the sale and purchase transaction (which would eventually lead to a legal charge).  Furthermore, the plaintiff’s case is likely to be true.  He was already lured into signing Exhibit C7 on his visit to the 4^th defendant’s office, a blank execution page that could easily be inserted to an Assignment.  The 2^nd defendant, which was controlled by the 1^st defendant, could then further execute a legal charge in favour of the 4^th defendant without any further knowledge of or interruption from the plaintiff. 

(9) The 3^rd defendant also agreed initially in cross‑examination that he would not consider lending money to assist a person in buying a property as that would not be an area of the 4^th defendant’s business.  Yet, in an affirmation filed by the 3^rd defendant in HCA1550/2009[30], he deposed as follows:

“7. The [plaintiff] revealed to me that the Property was to be sold to the [2^nd defendant]. I told the [plaintiff] that [the 4^th defendant] could assist the [2^nd defendant] to purchase the Property by granting a loan secured by a mortgage of the Property…”

When confronted with this discrepancy, the 3^rd defendant prevaricated and could not provide any cogent explanation.  Based on this version in his affirmation, the 3^rd and 4^th defendant were actively assisting the 1^st defendant and the plaintiff in the sale and purchase of the Property.  The role of the 4^th defendant was not as detached as suggested by the 3^rd defendant.  The 3^rd defendant would also have known that the 2^nd defendant needed financial assistance to back the purchase.  It became extremely curious why the 3^rd and 4^th defendants could comfortably rely without question on the statement contained in Exhibit C7 and the eventual Assignment that the purchase consideration of HK$20 million had been fully paid to the plaintiff within a matter of days.

(10) Counsel for the plaintiff submitted that the way in which the 3^rd and 4^th defendants handled the purported loans to the 2nd defendant was dubious.  I agree. One of the loan documents which the 4^th defendant prepared for the plaintiff to execute was a board resolution of the 2^nd defendant regarding the loan facility of HK$12 million[31].  This was a pro forma document with information filled in by handwritings.  The 3^rd defendant admitted that they were filled in by his wife.  Interestingly, it contained a resolution that the 2^nd defendant requested the 4^th defendant to make the entire HK$12 million payable to the 1^st defendant.  When cross-examined as to why such huge sums were released to the 1^st defendant, the 3^rd defendant explained:

“When they came up [22 December 2006], they needed money urgently. I needed to decide quickly. They could instruct us to pay to whoever. They did not tell me the bank a/c and it was holiday. The plaintiff was also in a hurry to go abroad, therefore we were authorized to pay to the first defendant.”

First of all, this explanation was never mentioned earlier in his witness statement or affirmations.  Secondly, this version was not even put to the plaintiff by his counsel.  Thirdly, prior to the commencement of this trial, the 3^rd and 4^th defendants had given limited discovery despite facing an express court order.  The 3^rd defendant deposed that they were in possession of no further documents relating to the loans.  In relation to the first four tranches of loan, they were only substantiated by four acknowledgments of receipt signed by the 1^st and 2^nd defendants[32].  They suggested that a total of HK$6 million had been given to the 1^st defendant in cash and HK$1,500,000 had been given to the 2^nd defendant in cash.  Then in the course of the trial, the 3^rd and 4^th defendants provided further disclosures.  Counsel for the plaintiff pointed out that not only had the 3^rd defendant acted in contempt, the additional documents he produced were at variance with the acknowledgments of receipt.  This can be readily seen from a breakdown of the loans now provided[33].

(11) The 3^rd defendant was extensively cross‑examined on the breakdown.  I do not consider it necessary to burden this judgment with too much accounting details.  Suffice to point out that the 3^rd defendant gave incoherent explanations which involved the following revelations:

(i) Very substantial sums (unsubstantiated by any document) were paid to the 1^st defendant in RMB in the PRC.

(ii) There were various sums paid to other persons (including BOC, Hong Kong Government and TNTH) as directed by the 1^st defendant.

(iii) The only cheque payable to the 2^nd defendant was in the sum of HK$2,109,039.80.  Yet this alleged payment was not reflected in the general ledger of the 2^nd defendant[34].

(iv) One cash cheque in the sum of HK$483,754 was apparently linked with a handwritten note[35] found in the 4^th defendant’s loan file showing some connection with the 3^rd defendant himself.

(12) Also of interest is the fact that in the course of cross‑examination, the 3^rd mentioned another acknowledgment of receipt of HK$20 million from the 2^nd defendant signed by the plaintiff.  He eventually located it in the corporate “green box” of the 2^nd defendant.  It was made Exhibit D2.  This Exhibit is an original acknowledgment dated 22 December 2006.  The 3^rd defendant had not previously mentioned this document or disclosed its existence.  It did not form part of the “loan documents” which the 3^rd defendant mentioned in his witness statement as having been signed by the plaintiff at the office of the 4^th defendant.  Neither was it mentioned by Mr Yau as one of the documents the plaintiff executed in front of him on either 22 December 2006 or 3 January 2007.  The 3^rd defendant was unable to explain how it existed.  In my view, its existence is again consistent with the plaintiff’s evidence that he was asked to sign on a pile of English documents at the 4^th defendant’s office.  Exhibit D2 was likely to be one of them.

66.  All in all, I am satisfied that the 3^rd defendant was not an honest and credible witness.  I find that the 3^rd defendant had not told this court the truth as to the arrangement and handling of the alleged loans between himself and the 1^st defendant.  I will certainly prefer the evidence of the plaintiff as and when they conflict with those of the 3^rd defendant.  I also reject the 3^rd defendant’s evidence.  In making this decision, I have taken no account of the hearsay statements made by the 1^st defendant.  He is self‑evidently a fraudster and I can place no weight on anything he said which has not been tested under cross‑examination.  I have also placed no reliance on the evidence about events subsequent to July 2007.  They involve conflicting bare assertions between the plaintiff and the 3^rd defendant.  In my judgment, since I have concluded my views on the credibility of the plaintiff, the 3^rd defendant and Mr Yau as aforesaid, it is unnecessary for me to further resolve those peripheral disputes.

Findings of fact in relation to the case of misrepresentation

67.  I make the following findings of fact:

(1) The plaintiff only attended the office of the 4^th defendant once in December 2006 which was a few days after 22 December 2006, the date he entered into the Chinese Agreement with the 1^st defendant.

(2) At this meeting, only the plaintiff, the 1^st defendant and the 3^rd defendant were present.

(3) The plaintiff was asked by the 3^rd defendant whether he had agreed with the 1^st defendant on the sale and purchase of the Property.  This gave the impression that the 3^rd defendant was aware of the existence of the Chinese Agreement between the plaintiff and the 1^st defendant.

(4) In fact, the 3^rd defendant knew about the Chinese Agreement and its contents as he had admitted in his affirmation. 

(5) After the plaintiff answered in the affirmative, the 3^rd defendant said that they could proceed to signing of documents.  In so doing, the 3^rd defendant represented that the documents which he would ask the plaintiff to sign were in furtherance of the Chinese Agreement (“the 1^st Representation”).

(6) The 3^rd defendant then showed him a pile of documents in English which were stuck with labels at various places.  The 3^rd defendant did not explain the contents of the documents.  Neither did the plaintiff understand their contents.  In the process, the 3^rd defendant turned to various pages and asked the plaintiff to sign.  The plaintiff did so. 

(7) After signing a few pages, the plaintiff noticed on one page the figure of HK$100,000.  The plaintiff paused to ask the 3^rd defendant what it was referring to.  The 3^rd defendant said it was about a deposit of HK$100,000.  The plaintiff told him that he had not received any deposit.  The 3^rd defendant then represented to the plaintiff it was just a matter of formality and that it was necessary to reflect the payment and receipt of deposit (“the 2^nd Representation”). The plaintiff thus continued to sign on the documents.

(8) The 3^rd defendant knew that amongst the documents that he asked the plaintiff to execute were: (i) two duplicates of Exhibit C4; (ii) two duplicates of Exhibit C7; and (iii) two acknowledgment of receipts stating that the plaintiff had received the total purchase price of HK$20 million.

(9) The 3^rd defendant knew that the contents of the two duplicates of Exhibit C4 contain terms which were clearly at variance with and hence not in furtherance of the Chinese Agreement.

(10) The 3^rd defendant knew (from Exhibit C5) that the two duplicates of Exhibit C7 were execution pages which would be attached to and constitute an Assignment of the Property.  He knew that the Assignment would state that the plaintiff had received the sale consideration of HK$20 million which was untrue (at least as at the date of the meeting).

(11) The 3^rd defendant knew from the plaintiff and the contents of Exhibit C4 that the plaintiff could not have received the sale consideration of HK$20 million as of the date of the meeting.

(12) The 3^rd defendant’s representations were false in that the signing of the two duplicates of Exhibit C4, the two duplicates of Exhibit C7 and the two acknowledgments of receipt was not a matter of formality and was not in furtherance of the Chinese Agreement.

(13) Furthermore, the 3^rd defendant omitted to inform the plaintiff of the highly material fact that amongst the documents he signed were the two duplicates of Exhibit C4, the two duplicates of Exhibit C7 and the two acknowledgments of receipt.  This rendered the representations made by the 3^rd defendant false or misleading in the context in which they were made [see Chitty on Contracts, 31^st edn, §6‑020].

(14) The 3^rd defendant made the 1^st and 2^nd Representations which were false or misleading in his capacity as an agent of the 4^th defendant.

(15) The 3^rd and 4^th defendants made the 1^st and 2^nd Representations knowing that they were false or misleading and knowing that the plaintiff would rely on them.

68.  Counsel for the 3^rd and 4^th defendant argued that even if misrepresentations were established, there was no reliance on them by the plaintiff.   He argued that the plaintiff was all along willing and prepared to convey the title of the Property to the 2^nd defendant even prior to receiving the purchase price. 

69.  It is true that by entering into the Chinese Agreement, the plaintiff understood that the 1^st defendant wanted him to “轉借” the Property to the 2^nd defendant. He agreed to this “轉借” although the detail terms were not discussed.  He understood that to mean “transfer title first, then subsequently pay for price and deliver possession” (先轉名, 後付款及交吉).  It was on this basis that the plaintiff and the 1^st defendant entered into the Chinese Agreement.  However, it was contemplated under Clause 5 that the plaintiff would be executing documents for the sale and purchase at a solicitor’s office.  On a proper construction of Clauses 2 and 5 in conjunction, the plaintiff was expecting that on the day when legal documents were executed at a solicitor’s office, the purchase price would become immediately due and payable by the 1^st defendant.  A deposit of HK$12 million would then be paid within 15 working days and the balance of HK$10 million would be paid within three months.  Clause 4 should also be construed in conjunction with Clause 5 which meant that by the time the plaintiff executed legal documents at a solicitor’s office, the 1^st defendant would put up corresponding amount of assets as security.  In fact, under cross‑examination, the plaintiff said: “When the procedure would be handled by lawyers, the 1^st defendant would have to provide securities”.  Security was required because the Property would be transferred to the 2^nd defendant even prior to the receipt of the purchase price.  Clause 3 also provided protection in the sense that the plaintiff would be entitled to stay in the Property until the purchase price was fully paid up.  In my judgment, the aforesaid was the basis upon which the plaintiff was prepared to “轉借” the Property to the 2^nd defendant.

70.  The plaintiff’s evidence was that during the meeting with the 3^rd defendant, he thought he was signing “preliminary agreement and acknowledging receipt of first deposit” (簽署初步協議文件及收小訂).  From his experience, legal documents relating to formal sale and purchase of a property would be transacted at a solicitor’s office.  He was not aware that amongst the documents he signed at the 4^th defendant’s office were documents of such a nature that would result in assigning the Property on an erroneous basis that he had received the entire purchase consideration as well as requiring him to deliver vacant possession.  After the plaintiff told the 3^rd defendant that he had not received any deposit of HK$100,000, the 3^rd defendant said it was just a matter of formality and that it was necessary to reflect the payment and receipt of deposit.  The plaintiff agreed to sign and acknowledge receipt of a deposit of HK$100,000 because he thought that the Chinese Agreement allowed the defendant to defer payment of the purchase price.

71.  I accept the evidence of the plaintiff.  I find that he did rely on the 1^st and 2^nd Representations.  He was not aware that amongst the documents presented by the 3^rd defendant for his signatures were those legal documents which he expected would only be executed at a solicitor’s office.  But for the misrepresentations, the plaintiff would surely not have signed on the two acknowledgments of receipt.

Legal conclusions from the findings of fact

72.  I find that the 3^rd and 4^th defendants are liable to the plaintiff for damages for misrepresentation.  Under section 3(1) of the Misrepresentation Ordinance, Cap 284, the measurement of damages is the same whether the misrepresentations were made innocently, negligently or fraudulently.  Strictly speaking, it is not necessary for me to find whether the misrepresentations were made by the 3^rd and 4^th defendants fraudulently. However, as my findings of fact show, the 3^rd defendant clearly knew that the 1^st and 2^nd Representations were false or misleading when he made them.  Couple with the observations I made in paragraph 65 above, I am satisfied that the 3^rd defendant was acting fraudulently.

73.  Counsel for the 3^rd and 4^th defendants argued that it made no commercial sense for his clients to partake in such a scheme just to earn some interests.  He argued that his clients put up real funds under the loans. With respect, I disagree.  The 3^rd defendant did not give truthful evidence as to what was actually arranged between him and the 1^st defendant. Perhaps we will never get to know.  Yet, by luring the plaintiff into assigning the Property absolutely to the 2^nd defendant, the 4^th defendant was able to get a security over the HK$12 million loan (which was released to the 1^st defendant) at which interest of 30% per annum was charged.  It was also able to obtain a second mortgage on a further loan advanced.  Then within a few months time, the 3^rd defendant introduced Chong Hing Bank to take over the legal charge and second mortgage. The principal of HK$12 million was fully repaid to the 4^th defendant. The outstanding interest and some further advances were again secured by another second mortgage in favour of the 4^th defendants. 

74.  Initially, counsel for the plaintiff asked for damages to be assessed at HK$32,500,000. That was the sale price achieved by Chong Hing Bank in the mortgagee sale of the Property.  In the course of closing submission, he fairly conceded that the amount of damages should be HK$22 million which was the value of the Property at which the plaintiff was prepared to sell in December 2006.  In my view, the concession was properly made.  The plaintiff’s evidence was that he was intending to sell the Property before the 1^st defendant expressed his interest.  Even if the misrepresentations had not been made, the plaintiff would likely have disposed of the Property in or around that period of time.  In the circumstances, there is no reason why an award of damages should include a subsequent property price surge in the market.  In any event, the plaintiff continued to possess and enjoyed the Property until an order of possession was made in March 2011.  Counsel for the 3^rd and 4^th defendants did not argue otherwise.

75.  As for the case of the 2^nd defendant, it obtained a conveyance of the Property without paying for the purchase price.  This was made possible purely because of the misrepresentations made by the 3^rd and 4^th defendants. Even though the 2^nd defendant cannot be said to have been a party to the misrepresentations, it had provided no consideration for the conveyance.  The plaintiff never had the intention of making a gift to the 2^nd defendant. In the circumstances, I conclude that the 2^nd defendant was in law holding the beneficial interest in the Property on resulting trust for the plaintiff.  After the mortgagee sale by Chong Hing Bank, a balance of HK$18,919,721.81 became returnable to the 2^nd defendant.  For the same reason, the 2^nd defendant would be holding this amount on trust for the plaintiff.  This amount is now sitting in court under HCMP 2429/2013.  In the course of closing submission, counsel for the plaintiff fairly conceded that the plaintiff would not insist on an order of damages for misrepresentation against the 2^nd defendant. 

76.  As the file in HCMP 2429/2013 is not before me, I cannot make order for the release of the amount lodged in court with the accrued interest in favour of the plaintiff.  That would have to be done on a separate application under HCMP 2429/2013 pursuant to the judgment and order I make in these proceedings.

77.  I will first make a declaration that the plaintiff is entitled to the funds now lodged with the court under HCMP 2429/2013 together with accrued interest (if any).  As the plaintiff cannot have double recovery, the amount of damages for misrepresentation which I shall award in favour of the plaintiff against the 3^rd and 4^th defendants would have to be the difference between HK$22 million and the actual amount paid out to the plaintiff under HCMP 2429/2013.  I will order interest at judgment rate as from the date of release of funds under HCMP 2429/2013 and the date of payment of the balance. 

78.  I will also make a declaration that the July Second Mortgage is null and void as against the plaintiff.

Costs order nisi

79.  As between the plaintiff and the 3^rd and 4^th defendants, costs shall follow the event.  I order that the 3^rd and 4^th defendants do pay to the plaintiff costs of this action to be taxed if not agreed on party‑and‑party basis.

80.  As between the plaintiff and the 2^nd defendant, neither party full wins.  In the circumstances, it is fair that each party should bear his/its own costs.

81.  The above costs order nisi shall become absolute unless an application for variation is made within 14 days from the date of delivery of this Judgment.

Postscript

82.  I understand that there is a complaint lodged by the plaintiff with the Law Society against the conduct of TNTH and Mr Yau.  I understand that the process has been suspended pending the resolution of these proceedings.  My findings of fact in these proceedings are pertinent to the Law Society’s further handling of the complaint.  The original conveyancing file of TNTH and the physical exhibits taken out therefrom should not be released to TNTH.  I direct that after the expiration of the appeal period, they should be sealed up and kept by the court.  The Law Society is at liberty to apply to this court for their release to them to further their investigation into the complaint. 

83.  The last matter is to deal with Mr Yau’s application for witness expenses.  I have a discretion to make an order to reimburse a witness in respect of any expenses reasonably and properly incurred by the witness under section 52 of the High Court Ordinance, Cap 4.  In view of my findings that Mr Yau had deliberately given false evidence to this court, I reject his application.  In fact, I am surprised that Mr Yau had the audacity of making such an application.