CHAN CHUEN WING DAVID v. TOMEI INDUSTRIAL (HOLDINGS) LTD. AND OTHERS

HCCL134/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.134 OF 1997

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J U D G M E N T

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THE ACTION

1. This is the judgment in the action between the plaintiff, a director of a publicly-listed company, formerly known as Firstone International Holdings Limited ('Firstone') (since renamed Fortuna International Holdings Limited) and two defendants, the 3rd defendant ('Tomei') (since renamed Toyo Holdings Limited) and the 4th defendant ('Quick Motion'). The plaintiff's case against the 1st and 2nd defendants was dismissed by consent shortly before the commencement of this trial.

2. The plaintiff's claim is in short compass. The plaintiff says that on 11 July 1997 he entered into a contract with either Tomei or Quick Motion to purchase a total of 18,296,400 shares and 28,218,400 rights in Firstone at the price of 0.60￠ and 0.30￠ respectively. This contract is evidenced by a fax of that date duly signed by the plaintiff himself and by one Alex Wong, at that time an officer of Tomei.

3. The plaintiff's complaint is that Tomei (or Quick Motion) failed to keep the bargain so struck and refused to complete. Indeed it is said that Tomei (the parent of Quick Motion) wrongfully and in breach of the agreement sold the shares on a fast-rising market for their own account. Accordingly, Mr Chan's claim in these proceedings is for damages for breach of contract, such damage representing the difference between the contract price and the price obtaining in the market on 18 July 1997 and shortly thereafter. Given the considerable price disparity between the closing price on 11 July and the median price prevailing on 18 and 21 July, this claim, I am told, amounts to something in the order of $30 million.

4. The case put forward by the defendants is, at bottom, one of fraud. There is no dispute that the contract of 11 July was made in the terms reflected by the signed fax of the same date. There is, however, considerable dispute as to the circumstances in which that contract came into being. Suffice to say that the defence case essentially is that in a telephone conversation which took place in the late afternoon of 11 July with Mr Alex Wong of Tomei, resulting in the bargain of that date, Mr David Chan misrepresented the position of Firstone, when he must have known of an intended placement in Firstone shares to a company with Mainland Chinese interests, namely Guangnan Holdings Limited ('Guangnan'). Accordingly, say the defendants, as a result of the fraudulent misrepresentation and their reliance thereon, the defendants were entitled to, and did, rescind the contract.

5. This, therefore, is the broad shape of this case. A number of legal and factual issues arise, but the heart of the case is that of misrepresentation; indeed, the bulk of the viva voce evidence on either side has been directed towards this question, which turns almost exclusively on the oral testimony of the two principal factual witnesses, David Chan and Alex Wong. It is to their evidence, therefore, that I now turn.

THE MISREPRESENTATION ISSUE

(I) The evidence

(a) The plaintiff's version of events

6. Mr Chan had been a director of Firstone, which was incorporated in Bermuda, since its public listing in Hong Kong in 1992. In fact he had been Managing Director of that company since July 1994 to 4 March 1997, and thereafter he was re-appointed to the same position from 11 November 1997 and remains so to-date. During the March-November 1997 lacuna he had been replaced by a Mr Jakel and thereafter by a Mr Soebakti, both of whom had been installed on the instructions of the incoming majority shareholder, Mr Kwee Kumala Cahyadi (Mr Kumala), who formally became Chairman of Firstone as from 27 June 1997. Mr Kumala in turn had replaced the outgoing Chairman, and founder of the company, Mr Wan Sitt Kan ("Mr Wan"), who had been Chairman from 1992 until 26 June 1997. I sketch in the major players within the company at the relevant time because they are part of the factual backdrop to Mr Chan's version of events.

7. Mr Chan's case is that he had been in general discussions with the Tomei group to buy that group's shareholding in Firstone for some time, probably since the end of 1995 to early 1996, first with a gentleman called Johnny Lau and thereafter with Alex Wong. He had always been interested in buying these Firstone shares held by Tomei, he said, but the price had never been right.

8. When Mr Kumala had come onto the scene, injecting money and becoming the major shareholder in Firstone, Mr Chan's star had begun to wane; indeed he was removed from his position as Managing Director of Firstone on 4 March 1997 and, whilst remaining a Director, played little part in the management of the company for the next eight months. Instead he became a consultant, in particular to that part of Firstone's business relevant to the sale of Chinese wine. In light of Mr Kumala's arrival as the dominant force in the company, Mr Chan's idea, he said, had been to purchase the Firstone shareholding held by the Tomei Group, thereby permitting him to combine shareholding resources with Mr Wan, the outgoing Chairman, and thereby maintain a united front against the influence of Mr Kumala within Firstone.

9. In any event, the intermittent conversations with Mr Johnny Lau and Mr Alex Wong of Tomei over the course of the preceding months had come to nothing. However - and this is where, for present purposes, the story really begins - events began to take a different course in early July 1997.

10. Mr David Chan's evidence was that the deal with Alex Wong essentially was done "a few days before 11 July" in the office of a Mr Chambers Wong (the head of a Tomei subsidiary) at Century Plaza, Hung To Road, Kwun Tong. At this meeting, said Mr Chan, the contract price for the shares was orally agreed at 60￠ for each share and 30￠ for the per share rights entitlement, albeit at that date the precise quantity of such shares remained to be ascertained, and it was arranged that Mr Wan's broker would telephone Mr Chan's broker as to the exact figure that was required for payment.

11. After the Kwun Tong meeting, Mr Chan said he had two telephone calls from Mr Alex Wong prior to 11 July, the first to tell Mr Chan that he was not yet ready to complete, and the second, the day following, to check on Mr Chan's travel plans and to express the hope that, in Mr Chan's words, "the transaction would be completed before I went abroad".

12. So far as the key date of 11 July is concerned, Mr Chan said that on that day he had a third telephone conversation with Mr Wong. This was a call received from Mr Wong "shortly after 4.00 pm", when Mr Chan was told "the matter was OK and the agreement could be faxed to me". It was also agreed that the crossing of the shares could be done or the following Monday. This, on his account, was the sum total of the telephone contact on that day.

13. According to Mr Chan, he received the relevant fax on 11 July, signed it, and returned it. On his version, no telephone call took place with Alex Wong on 12 July, on which day he had flown to Japan on an early flight on company business. He stayed in Japan until 18 July, thereafter going to Bali and Jakarta, and returned to Hong Kong on 21 July.

14. Mr Chan's evidence was that on 14 July (which was a Monday) he had received a telephone call from Alex Wong asking why the Firstone shares were suspended, and that he responded that he did not know. Mr Chan says he then telephoned his own broker, Patrick Wong, who confirmed that the shares were suspended but did not know the reason, but he says that he agreed with Alex Wong on the telephone on that Monday, 14 July, that the deal would be completed when the shares resumed listing, and that he also communicated this to his broker, Patrick Wong.

15. Mr Chan went on to say that the first occasion on which he knew the reason for the suspension of the shares was when he was informed on the telephone by the company secretary of Firstone, one Timothy Cheung, in the afternoon of 14 July. During that call he was not given any detail, save and except that Firstone was to be the subject of "a very large deal", and he first became aware of the share placement to Guangnan via the public announcement reported in the press on 18 July.

16. On the same date, 18 July, Mr Chan said that he received a telephone call in Bali from Mr Patrick Wong, his broker, to say that Tomei "had refused to do the crossing" and that Tomei would not proceed with the deal. Accordingly, he telephoned Alex Wong to find out why, and was told by Mr Wong that there was now "a great difference in price" and that he refused to sell without a further negotiation as to this price. He maintains that Alex Wong said to him that if he agreed to sell "the SFC would challenge me for insider dealing", but that he responded that he did not do that and said that "if I really did that I would not have used my name". Mr Chan says that he asked Alex Wong to wait for him to return to Hong Kong on 21 July, his purpose being "I would not let him sell the shares in the market until I arrived and talked to him", and that Mr Wong had agreed. In this telephone conversation with Alex Wong of 18 July, Mr Chan stated that Alex Wong did not tell him the price at which the shares were then trading, save that there had been "a change of price". As to this, Mr Chan told the court that he knew the price was rising but "at that moment I was not very concerned about how high it would go up".

17. However, continued Mr Chan, when he returned to Hong Kong he called Alex Wong who would not see him and return his calls. Mr Chan said he went to see his lawyers in order to obtain an injunction to stop the sale by Tomei of the shares he now considered to be his. It is a matter of record that proceedings were issued against the 1st defendant on 22 July 1997, and an ex parte injunction was granted by Sears J on 23 July against the 1st defendant, which at that stage was the only defendant in the case. This injunction was later discharged by consent, after the filing of evidence, pursuant to an Order of Rogers J (as he then was) dated 12 September 1997.

18. The crucial element within Mr Chan's evidence was that he was not aware of the intended placement to Guangnan until he was told about this subject when he was abroad, and he specifically denied the particular conversation with Alex Wong in which the representation, which lies at the core of this dispute, is alleged to have been made. Which brings me to the version of events told to the court by Mr Wong.

(b) The Defence account

19. The account of these events given by Mr Alex Wong was and is significantly different.

20. In July 1997 Mr Wong had been an Executive Director of the 3rd defendant. By virtue of his position, he had known Mr Johnny Lau, who had ceased to be Chairman of the Tomei Group when Semi-Tech (Global) Company Limited ("Semi-Tech") had invested in the Tomei Group via its subsidiary Kong Wah Holdings Limited. At that time, the Group held a substantial shareholding in Firstone, and indeed had done so since Firstone first went public in 1992. However, after Semi-Tech had taken control it was not interested in carrying this shareholding on a long-term basis. Thus the intention was to dispose of the Firstone shares in the market. By around April 1997 the market price of Firstone shares was at about the break-even point when compared with the investment cost, and so Tomei was looking to sell.

21. Mr Wong said in evidence that prior to 11 July 1997 he had had contact with David Chan on one occasion only, in March 1997, when Mr Chan called him on the telephone and had expressed an interest to buy Firstone shares from Tomei. A short meeting had been held at Kong Wah's office in Hung To Road, Kwun Tong later that day in March, this being well prior to the date of the Firstone 'one for one' rights issue which was announced on 2 June 1997, and accordingly the March discussion had been in terms of the shares only. The discussion the two men had then had in fact took place in the office of Chambers Wong, another director of Tomei whose prime position was as the Vice Chairman of Kong Wah. This office had been chosen because it was bigger and was also available at that time.

22. During the meeting, said Mr Wong, David Chan had referred to his relationship with Mr Wan, the then Chairman of Firstone, to the fact that there was some kind of power struggle with Mr Kumala, and that they wished to regain control of Firstone with the assistance of Tomei's shareholding in Firstone. Accordingly, Mr Chan asked if Tomei would sell this shareholding, to which Mr Wong responded that if the price was right that could be considered. However, continued Mr Wong, Tomei was then holding about 14 million shares in Firstone, a very significant amount of money was involved (in the order of some HK$30 million), and David Chan could not provide any comfort that there were funds available to pay for such a large transaction. There was no agreement struck at this meeting, said Mr Wong, and David Chan had said that he would consider the position and revert if he was in a position to make Mr Wong a formal offer.

23. Mr Wong further stated that David Chan did not revert to him after this March meeting, and that the next occasion on which the two of them talked was on 11 July 1997. In this connection, Mr Wong was sure that there was no question of a meeting three to four days prior to 11 July, as had been suggested by Mr Chan, and he "totally disagreed" with the suggestion that there had been a contract made at this earlier date, subject only to confirmation from his Board. On this account, therefore, the position was that a meeting with David Chan had taken place in March 1997, but that thereafter there had been no further contact between the two of them until 11 July.

24. Which brings me to the events of that date. Mr Wong's evidence was that David Chan had called him on the telephone at about 4 p.m. in the afternoon of 11 July (which was a Friday) at a time when Mr Wong was attending a director's meeting of one of Tomei's subsidiaries. Mr Chan had asked Mr Wong whether Tomei was willing to sell Tomei's shares and subscription rights in Firstone, and Mr Wong's response again was that if the price was right, this could be considered. In fact, Mr Chan named a price of 60￠ each for the shares and 30￠ each for the rights, with the transaction to be effected through the parties' respective brokers.

25. Mr Wong said that in this telephone call he had indicated that the price seemed to him to be acceptable, but that he needed to consult his fellow directors before he could conclude and confirm the deal. He also recalled saying that with this type of exceptional transaction (whereby Tomei was divesting itself of its entire holdings in Firstone) that there was need to obtain the approval of Semi-Tech, which was Tomei's ultimate holding company. Mr Wong further said that in this conversation he asked David Chan who it was who was buying the shares, because he recalled the previous idea of Mr Chan aligning himself with Mr Wan to attempt to regain control of Firstone. David Chan had replied that it was "himself and some other existing shareholders of Firstone who wanted to increase their stake in Firstone", but he did not mention Mr Wan in this context.

26. Mr Wong said that in monetary terms he thought the offer to purchase was acceptable, since after adjustment for the 'one for one' rights element it was in line with the current market price, with perhaps a small profit accruing overall on the sale. In any event, he told David Chan he would revert after he had cleared matters with the holding company.

27. According to Mr Wong he then called a lady named Clara Loh, a senior Vice-President of Semi-Tech, who was also a Tomei Director. He did this, he said, at around 4:15 p.m. He told her about David Chan's offer and the fact that it was in line with market, and that completion would be via brokers (thereby removing any monetary concerns). After considering the matter Ms Loh agreed, he said, on the basis that payment was guaranteed, and Mr Wong said she told him to go ahead with the deal with Mr Chan.

28. However, said Mr Wong, after this telephone call with Ms Loh, he did not immediately revert to Mr Chan, thinking that since the market had by then already closed, there was no need to hurry to reply. Accordingly, at about 4:30 p.m. on the same day, he returned to the meeting he had originally been attending.

29. The next thing to occur, he said, was that David Chan called again at around 5 p.m. to ask whether Tomei had agreed to his offer. Mr Wong said he had thought it was odd to be in such haste, given that the stock market was already closed, and he had asked Mr Wong why he was in such a hurry and if there was any special event happening in Firstone, to which Mr Chan had replied that there was not, and that his partners in the transaction were anxious to have Tomei's confirmation of the trade. Although Mr Wong gave his evidence in English, he was asked to repeat this part of his conversation in Cantonese, which exchange was translated for the benefit of the court thus :-

"David,

Why such a hurry? Did anything happen to Firstone?"

"Nothing that matters. Some present shareholders wish to increase the number of shares that they are holding."

30. To this Mr Wong said that he had replied that if the deal was to be completed through the parties respective brokers and if the price was as arranged, then the transaction could be fixed for the Monday (which was 14 July).

31. Mr Chan had then requested a written confirmation from Mr Wong, saying that he wanted to know exactly the quantity of shares and subscription rights that Tomei had still in hand because he was aware that Tomei had been disposing of Firstone's shares in the market since April. In this conversation, the two men also exchanged the names of the respective brokers who would be used on completion : Mr Chan identified Mr Gilbert Chu of Sun Hung Kai Securities and Mr Wong said he would use Tomei's usual broker, ABN Amro Bank.

32. Immediately after this second conversation, Mr Wong then had his secretary prepare the required written confirmation of the deal, the relevant part of which I set out below :-

"Referring our telephone conversation today, we hereby confirm our offer to sell the following listed securities to you/your principal at the price indicated in the following table:

Code No.	Name of Securities	No. of Share / Rights	Unit Price (HK$)
0530	Firstone Int'l Holdings Ltd.	18,296,400	0.60
1687	Firstone (Rights)	28,218,400	0.30

Transaction will be listed on 14 July, 1997 through the brokers of both parties and completion on 16 July, 1997.

Please confirm your acceptance of this offer by signing this letter and returning by fax to us (Fax No.23130936) today."

33. This was signed by Alex Wong and was faxed by Mr Wong to fax number in Central where David Chan had said that he then was, albeit Mr Wong was unaware of the precise location. Later that evening the offer letter, duly signed by Mr Chan, was faxed back to Mr Wong. This, said Mr Wong, came in at about 6 p.m.

34. The following morning, Saturday 12 July, when Mr Wong was about to attend the regular Saturday morning meeting of Kong Wah meeting, a Semi-Tech subsidiary, he said that he received another call from Mr Chan, who told him that the trading of Firstone shares would be suspended on Monday 14. In response to Mr Wong's query, Mr Chan told him that Firstone was going to have a placement of shares to the Guangnan Holdings Group, the placement price being about 45￠. It was at that moment, said Mr Wong, "that I found myself cheated by David Chan", since the previous evening he had said that nothing special was occurring at Firstone, and yet early the next day Mr Chan was informing him about "such a big event". In any event, Mr Wong's evidence is that upon receiving this information from David Chan, he told him that the deal could not be completed in its present form, and that if they were to complete "he and I would be in trouble in that the SFC would start some kind of insider dealing investigation", and that whatever Mr Chan would make financially on the deal "he would be penalized three times as much by the SFC".

35. Mr Wong said that Mr Chan did not respond to this, simply asking him to complete the deal when trading resumed, to which Mr Wong replied that "it would not be possible".

36. Mr Wong asserted that had he known about the placement at 5 p.m. on 11 July, he would not have made the deal - "never" - because, he said, at that time any company which had a relationship with a China related company like Guangnan would see its share price "go up like a rocket". This was obvious to him, said Mr Wong, and whilst David Chan had been adopting a friendly tone in this particular exchange, to the contrary he was angry and spoke loudly. He had, he said, informed fellow directors Mr Wong and Ms Loh about what had occurred with Mr Chan, and they both had agreed that the share deal would not be completed.

37. On Thursday 17 July, a public announcement from Firstone had provided full details of the Guangnan placement, and on Friday 18 July, trading in the market resumed in Firstone shares and rights. On that morning, Ms Alice Mak, his colleague in Tomei who was handling the proposed deal with the stockbrokers, came to him and asked if the deal was to be completed, Tomei's broker, ABN Amro, having earlier called and asked for instructions, and he instructed Ms Mak to instruct the brokers "that the deal would not be completed".

38. Later that day, Friday 18 July, David Chan had called him, said Mr Wong, requesting that he complete, but he responded that there was 'no way', and substantially repeated what he had earlier said in the telephone conversation of 12 July.

39. The price of the shares and rights "went up a lot" on the resumption of trading, said Mr Wong, and Tomei began themselves to sell "as much as possible" in the market on Monday 21, selling which was brought to an end by the ex parte injunction obtained by Mr Chan on Tuesday 22 July, the effect of which "was to freeze everything". The injunction was lifted on 12 September 1997, by which time the share price had retreated, leaving Tomei still holding a significant number of shares, with regard to which they had exercised their subscription rights as per the terms of the Firstone June rights issue (which itself had closed on 30 July).

40. Mr Chan last called Mr Wong on 21 July, said Mr Wong, to request a further discussion, but Mr Wong said that he informed him that "the deal we had had already fallen through" and that in the event he made no arrangement to see him. Mr Chan had threatened court action, said Mr Wong, to which his response was "do whatever you like", or words to that effect.

(c) Other evidence

41. There was a considerable amount of other oral evidence led at this trial, in particular on behalf of the defendant, who in addition to Mr Chan called a further five witnesses, namely Mr Kumala, Mr Soebakti (both of whom remain involved with Firstone), Mr Jakel and Mr Wan (who are no longer so involved) and Mr Patrick Wong, the broker intended for the transaction (who was able to add little other than to confirm that he was first given instructions by the plaintiff to act after the market closed on Friday, 11 July, with the crossing then anticipated for the following Monday). On the defendants' part, the only witness in addition to Mr Alex Wong was Mr Johnny Lau, the founder of the Tomei Group, who ceased to be Chairman in June 1996 consequent upon the Semi-Tech investment. All such evidence, however, went to circumstantial aspects of the case, and did not bite directly upon the central misrepresentation issue. This is also the position in terms of the documentary evidence. Save for the faxed contract of 11 July, all the documents which had been referred to sound to peripheral matters canvassed in support of the arguments put forward on each side.

(II) The legal and evidential burden

42. Given that the existence of the agreement of 11 July is common ground, it is accepted on both sides that it is the defendants that must make the running in this case. Nor is there any disagreement between counsel as to the legal effect of the misrepresentation alleged, if such is found to have occurred as the defence maintains. Mr Smith for the plaintiff also accepted that the court must be satisfied on a balance of probabilities that the defendants' case is made out, although he further pointed out, correctly in my view, that the presence of the allegation of fraud necessarily means that in determining whether the burden of proof has been discharged the probabilities must be weighed against the gravity of what is alleged.

(III) Findings on the issue

43. Having reviewed all the evidence in this case, together with the submissions of counsel, I have concluded that I must hold in favour of the defendants upon the misrepresentation issue, and I so do.

44. In my judgment the version of events given to the court by Mr Alex Wong represents the truth, and I find that events took place fundamentally as he described them. In particular I find as a fact that on 11 July Mr David Chan made the representation in the terms asserted by Mr Wong, that at the time he made such representation he knew it not to be true, and that in agreeing to the bargain in question Mr Wong had relied upon such misrepresentation.

45. These conclusions mean, most regrettably, that I have been driven to reject Mr Chan's evidence on all material aspects of the case. I now summarize my reasons for arriving at this view.

(1) The demeanour of the witnesses

46. This was a case fought directly upon the credibility of Mr Chan and Mr Wong. I found Mr Wong to be by far the more believable. There was a stark contrast in the respective demeanours of these two men. After making due allowance for the difficulty of giving evidence, I regarded Mr Chan as an unimpressive witness, frequently appearing non-responsive to specific questions, and often demonstrating a lack of recollection of matters he might reasonably have been thought to have had at his fingertips had events occurred as he maintained. I formed the impression, I hope not unfairly, that his evidence was an embroidery of half-truths (for example, there had been a meeting with Alex Wong, but it had taken place in March, not in early July) designed to obscure the realities of the urgent phone calls made to Mr Wong by Mr Chan in the late afternoon of 11 July 1997.

47. By contrast, Mr Wong made a very different impression upon the court. Straightforward and to the point, he had a manifest lack of interest in the outcome of this action, which was to be expected in that he is no longer with the Tomei Group. In the event he was unshaken by cross-examination, and when taxed on why he had not mentioned the earlier March 1997 meeting in his witness statement, he gave what seemed to me to be the not unreasonable response that this meeting had not only occurred much earlier than the July telephone calls, but that in any event, this meeting had taken place prior to the Firstone rights issue. Looked at in the round, his evidence had what I regarded as a distinct ring of truth.

(2) The inherent probabilities

48. I deal later in this judgment with certain aspects of the evidence which have been the subject of particular consideration in coming at the view that I have. At the outset, however, such evidence should be placed in its broad context. In the circumstances of this case I have considerable difficulty in accepting that which Mr Smith, counsel for the plaintiff, stoutly referred to as merely "a coincidence".

49. On his own case, the plaintiff had been considering the purchase of Firstone shares since 1996. The price had never been right, he said, albeit (as later appears) I strongly doubt whether there had been any occasion when he had seriously canvassed purchase of these shares. Be that as it may. Against this background and time-sequence, genuinely to have succeeded in completing a bargain to purchase the Firstone shares and rights, the timing of which coincided almost to the hour with what, allegedly unknown to Mr Chan, by then had taken place - namely, that in the late morning of that very day, 11 July, Mr Kumala had reached his placement deal with Mr Huang of Guangnan Holdings in the Island Shangri-La Hotel - strikes me as amounting less to a 'coincidence' than an instance of extraordinary (and highly providential) good fortune, it being common ground that upon publication of such news of a Mainland Chinese connection the mood of the market at that time would certainly cause the Firstone star to rise very significantly. Which, of course, is precisely what happened to the share price on Friday 18 July, the first day of resumed trading in the shares after the public announcement of the placement to Guangnan on 17 July.

50. In short, the intrinsic probabilities would seem to me firmly to weigh against the likelihood of the plaintiff's version of events. In itself, of course, this is in no sense decisive, but nevertheless such probabilities form the backdrop against which specific parts of the evidence fall to be evaluated.

(3) Particular aspects of the evidence

51. I do not intend to canvass each and every element of the evidence in a case which was larded with considerable detail. For present purposes it is sufficient, in my view, to isolate certain aspects which appear important in the particular circumstances of this dispute.

52. A significant part of the evidence of Mr Chan seemed to me to be directed towards distancing himself from the affairs of Firstone during the period March to November 1997. Whilst it is a matter of record that he was no longer Managing Director during that time, I do not accept that in effect he had been cast into the corporate wilderness, which was the picture that he initially strove to paint to the court. The Firstone Board Minutes for the period (which were produced at trial by Mr Chan specifically at the court's request) tend to indicate clear and continuing involvement in company affairs, and indeed on several occasions during this period Mr Chan formally chaired directors' meetings. Mr Chan's position during this particular period was as 'consultant', with specific reference to the Chinese wine business of Firstone, and it seems highly probable that the avowed interest of Mr Huang of Guangnan in participating in the placement of Firstone shares appears to have been, in major part, because of Firstone's ownership of a well-known factory in Shaolin which specialized in the production of Chinese banquet wines. Against this background, it cannot fairly be said that Mr Chan was not in the position to learn of possible corporate developments, to put it at its lowest.

53. Which brings me specifically to the central issue of the Guangnan placement. The uncontroverted evidence is that Mr Kumala initially was introduced to Mr Huang of Guangnan at the offices of a Mr Gilbert Chu of Sun Hung Kai Properties, and that following such introduction Mr Kumala had had two negotiating sessions with Mr Huang, on 26 June and 11 July 1997 respectively, at the Island Shangri-La Hotel. Indeed, it was at this latter meeting that the placement deal appears to have been reached, thereafter leading to a request to the Stock Exchange to suspend the shares and, ultimately, to the public announcement of 17 July 1997.

54. A good deal of evidence was led as to Mr Kumala's inclination to keep commercial matters to himself, together with his reluctance to discuss anything absent the necessity to do so. Indeed, the plaintiff's response to the misrepresentation plea is premised in large part on the evidential assertion that a shroud of secrecy precluded anyone else from knowing what was going on until the event was formally announced.

55. I am inclined to accept that Mr Kumala's general commercial modus operandi involved conducting his affairs absent consultation, and further that the Board of Firstone formally was not informed, via its secretary, Timothy Leung, of the placement deal reached with Guangnan, until Saturday, 12 July, by which time Mr Chan was of course on a plane to Japan. I am, however, strongly disinclined to accept the notion that what was happening with Guangnan was, in effect, hermetically sealed until 12 July at the earliest. Indeed, in the circumstances I should have thought this result would have been most difficult to achieve. Notwithstanding Mr Kumala's personal reticence, apparently even with his own Board, discussions of the type he was having with James Huang could not have been kept totally secret. Mr Kumala, for example, gave evidence that on 26 June, the day prior to the major reconstitution of the Firstone Board, he had discussed with James Huang the possibility of putting two non-executive Guangnan directors on the Board of Firstone, and further that, after the 26 June meeting, Mr Huang had apparently returned to consult his own Guangnan Board about the possible placement. Since Guangnan's obvious motivation was an interest in Firstone's wine factory in China, and since Chinese wine merchandising was the plaintiff's particular field of expertise, it is perhaps not a quantum leap to conclude, as I have, that the plaintiff certainly was in a position to glean what was in the wind.

56. Nor, it transpires, had the two meetings between Mr Kumala and Mr Huang taken place on 26 June and 11 July solely on a 'one to one' basis, as initially was represented to be the case. In chief Mr Kumala's evidence had been firmly to the effect that he had held his two meetings with Mr Huang alone : "Just the two of us". However, when pressed with reference to a letter dated 21 August 1997 written on behalf of Firstone by Sun Hung Kai International Limited to the Listing Division of the Stock Exchange (which recorded that the meeting on 11 July had been arranged by Mr Gilbert Chu, Executive Director of Sun Hung Kai International Limited and had been held from 11:30 to 12:45 p.m. between Mr Chu, Mr Kumala, Chairman of Firstone and Mr Huang, Director and General Manager of Guangnan (Holdings) Limited), Mr Kumala acknowledged that this indeed had been the case : "sorry for that". I note in passing that the Listing Division of the Stock Exchange also appears to have been exercised by what occurred in this instance : in the sequence of correspondence of which the letter of 27 August forms part, the Listing Division, in light of the "prolonged period of suspension" of the Firstone shares, had requested "a detailed sequence of events which led up to the entering of the Subscription Agreement". Absent sight of this Stock Exchange correspondence, it may be that Mr Kumala's memory of his important meeting with Mr Huang would not have been jogged.

57. Several other features of Mr Chan's evidence caused me particular concern. First, his revelation, towards the end of his evidence, and in response to questions from the Bench, that the very considerable sum of money earmarked for the purchase of these shares and rights had been put up by his family in Indonesia : "the money was on standby from my brothers and sisters in Indonesia", and that he was to hold the shares for them until they went up and made a profit. I think it highly unlikely, given the undoubtedly poor performance of the Firstone shares to date, that any risk would have been taken by Mr Chan with his family's assets unless such an investment was effectively regarded as a one-way bet.

58. Second, no explanation was put forward by Mr Chan for the fact that his witness statement made no reference to the meeting in the Kong Wah offices with Mr Alex Wong some three to four days before 11 July, notwithstanding that, at least on the basis of his case, such meeting formed an integral element of Mr Chan's account in terms of the formation of the contract to purchase the shares. When tested in cross-examination, all that Mr Chan could offer was acceptance that he had failed to mention this in his statement.

59. In addition, although not canvassed in cross-examination, it is in any event unclear why, in the affidavit sworn by Mr Chan in support of the ex parte injunction initially granted on 22 July restraining Tomei from further trading in the Firstone shares, that he had given a different version of the relevant chain of events, in particular stating that he had informed Alex Wong of a possible placement of Firstone shares prior to 11 July, viz. :

"13. On 10th July, 1997 Alex Wong, on behalf of the Defendant, asked me about a possible placement of Firstone shares to mainland Chinese interests. I informed him that a placement was possible at a price range in the region of approximately 40-50 cents but I was not aware of any intended placee at that time. I would add that I was not a party to any discussions with potential placees of Firstone shares. There had been no Firstone board meetings on the subject. Any negotiations or intended negotiations would be conducted by Mr Kumala, Chairman of Firstone, with the assistance of seconded officers or employees, mainly from the finance and secretarial departments, which did not include myself."

60. A similar version is found in the pleadings in the Reply (at paragraph 9), albeit this was then amended to become a conversation between Anissa Choi "representing the Tomei Group and/or one or more of the defendants" who asked the plaintiff if he was aware of a possible placement to Mainland Chinese interests "and the plaintiff replied that he was not aware of any intended placement, although he indicated that a placement was possible."

61. The contrast between these versions of what occurred when compared with Mr Chan's account in his oral evidence is striking, and this is a factor I have borne firmly in mind in forming my view as to his credibility.

62. Nor do I accept the general impression that Mr Chan clearly wished to create to the effect that he had been in constant negotiation since 1996 for the purchase of Tomei's Firstone shareholding. I find that hitherto there had been no serious negotiations, albeit I am prepared to accept that in general discussion there was broad reference to the state of the market and to the general level and performance of the Firstone shares. Mr Johnny Lau, the founder of Tomei and former Chairman of the Group, characterised their conversations as just 'chitchat' and said that so far as he could recall when he was Chairman he had at no time seriously discussed any share transaction with Mr Chan, that he believed that there had never been any serious intention to purchase the Tomei holding, and that the issue of Firstone shares (of which Tomei then held a very considerable number) had cropped up in the course of business conversation chiefly because Mr Lau had not been happy with the share performance, which showed "virtually a nil return". I accept this evidence; indeed Mr Chan himself acknowledged in evidence that in such conversations no particular share price have ever been mentioned.

63. I further consider it unlikely in the circumstances that Mr Chan was seriously considering teaming up with Mr Wan in July 1997 to form a bloc in opposition to Mr Kumala, since it is clear that Mr Kumala had provided essential financing for the company and that, as it also emerged, Mr Wan had pledged his Firstone shares to Mr Kumala as security for a loan; moreover, in evidence Mr Wan also said that whilst he had heard Mr Chan talk about if he (Chan) succeeded in acquiring Firstone shares whether they would have a higher percentage than the Indonesian shareholder (namely, Mr Kumala) "when he talked to me I never expressed my opinion". And with regard to the document which Mr Chan said constituted his formal notice to the Firstone Board of his interest "to purchase the shares of the Company from the market in the coming weeks", namely, his letter to the board of directors dated 26 June 1997, when giving evidence Mr Wan demonstrably had little idea either of when he had seen it and signed it, nor indeed who had given it to him. In the circumstances of this case I view the provenance of this particular document, which bears as its date the last day prior to Mr Wan's retirement and the major reconstitution of the Firstone Board (and which for his part, also, Mr Kumala was "positive" he had not seen before), with some reservation, although in the circumstances I regard it as little more than a straw in the wind with little bearing in terms of what actually occurred at the time of the striking of the bargain for the sale of the shares and rights on 11 July 1997.

64. In contrast to the problems I perceived in Mr Chan's account of events, I accept Mr Wong's version, which I regard as straightforward and highly probable. In this connection, I do not consider that there is much in Mr Smith's criticism to the effect that it was surprising that Mr Wong could have pulled the sale together in not much more than one hour in the late afternoon of 11 July. The fact that he had made a phone call to obtain the relevant authority from Ms Loh, and had had his secretary type up what was little more than a contract memorandum, is not something that in the circumstances strikes me as surprising, difficult or improbable. It was clear that in principle Semi-Tech was in the market to dispose of these shares, and had been for sometime due to their continuing poor performance. The price offered by Mr Chan was in line with the market after adjustment for the element of the rights, and at 90￠ for each share plus accompanying rights entitlement represented a small profit over cost. There is no dispute that Clara Loh had had the necessary authority to sanction the sale of the balance of the Firstone shareholding retained by Tomei, she was clearly easily contactable, and given that the transaction was to be completed through brokers, there could have been no concern as to payment. There was, therefore, no need for delay, although as Mr Wong said (and as I accept), given the closure of the market by the late afternoon of Friday, 11 July, he would not have acted quite so quickly had he not been expressly pushed to do so by Mr Chan's second telephone call of that afternoon. So that in circumstances of such haste, in my view it was eminently reasonably that Mr Wong asked the question that he did; indeed, it would have been distinctly odd if he had not done so.

65. I attach no importance to the manner in which the 1st defendant (against whom this action was earlier discontinued) chose to deal with what was a technically misplaced injunction, nor do I consider there are any discrepancies of significance between Mr Wong's witness statement and his viva voce evidence. Admittedly there is no reference in his witness statement to the March meeting, but I accept his explanation that in light of the case being advanced he did not think that the March meeting had any relevance, particularly since at that stage there could have been no question of any rights element since this meeting had occurred prior to the June 1997 rights issue. The witness statement characterization of the phone call to obtain authority as a "board resolution" is not something that I regard as suspicious. In this regard I accept that the requisite authority was indeed obtained to sell, and in the manner in which Mr Wong has recounted it to this court.

66. Looked at the situation in the round, therefore, I have concluded that the very clear probabilities are that, in making the agreement of 11 July, Mr Chan positively misrepresented to Alex Wong in their second telephone conversation of that date that no special event was happening at Firstone to explain his desire to close the deal at such short notice, that at the time of this telephone call Mr Chan knew this statement to be untrue in that he was aware of the imminent Guangnan placement and appreciated its potential effect upon the share price, and that in agreeing to sell this representation was relied upon by Mr Wong. It is not the function of this case, which is no more than a civil contractual dispute, to surmise precisely how or from whom Mr Chan came to know of the situation, and it would be inappropriate to do so. I take this opportunity to emphasise, therefore, that nothing in this judgment is to be regarded as indicative of any view upon that particular matter, and I have sought to go no further than is necessary to determine the fundamental issue in this case requiring resolution by this court. When viewed overall, in my judgment the evidence points compellingly in one direction. That which took place was not merely a coincidence (and in any event, I should have thought, a highly embarrassing one, given its timing) but in my judgment amounted to something very considerably more. So that I have had little hesitation in rejecting Mr Smith's assertion on the plaintiff's behalf that, as he put it, this was "an opportunistic defence on the part of the defendants to escape an unfortunate deal for them".

OTHER ISSUES

67. Given my findings on this primary element of this case, a decision on the other issues becomes academic for the purposes of this judgment. If and in so far as this case goes further, however, I should perhaps indicate the views I have formed on these other matters also.

(I) The relevant contracting party

68. In opening the plaintiff's case, Mr Smith put his case on the basis that either the 3rd defendant, Tomei, was the true contracting party, given that the 4th defendant, Quick Motion, the registered holder of the shares, was a wholly owned subsidiary thereof, or alternatively that if the 4th defendant was the contracting party, then Tomei was liable to the plaintiff for inducing Quick Motion's alleged breach of contract. In practice, this argument was submerged within the misrepresentation debate, albeit, perhaps with an eye on the question of enforcement, Mr Smith clearly preferred the first option.

69. For my part, I do not think there is much scope for argument. In so far as anyone in Tomei attached their minds to the position on 11 July, in my view as a matter of legal form the other contracting party was and must have been Quick Motion, the registered shareholder which had been thus since 1992 when the Tomei shareholding in Firstone had first been acquired. So that, had the plaintiff's claim for damages for breach of contract succeeded (which it has not), such claim would have lain at the 4th defendant's door, and any claim against the 3rd defendant could only have been in tort for inducing such breach.

(II) Damages

70. On behalf of the defendants, Mr Leong SC argued that, if and in so far as Quick Motion be held liable for breach of contract, the question then to be decided by the court was whether such damages should represent the difference between the price of the Firstone shares and rights entitlements as at the date of the contractual repudiation (that is, 18 July) or whether the date should be 19 November 1997, which represented the date on which that repudiation was first accepted on the pleadings by virtue of the plaintiff's election no longer to pursue the remedy of specific performance and to claim damages only.

71. The normal rule is that damages should be assessed as at the date of contractual breach : see Johnson v. Agnew, [1980] AC 367(HL). However, said Mr Leong, as had been recognized in that case, "this is not an absolute rule" and "the court has power to fix such other date as may be appropriate in the circumstances. " In this connection Mr Leong drew my attention to a number of cases evidencing judicial willingness to abandon rigid adherence to the date of original breach for damages assessment, and to adopt a more flexible approach : see for example Buckley LJ in Domb v. Isoz, [1980] 1 Ch 548, the Privy Council in E. Johnson & Co. (Barbados) Ltd v. NSR Ltd, [1997] AC 400, and in particular the decision of Santow J in the Supreme Court of New South Wales Equity Division in Ronnoc Finance Ltd v. Spectrum Network Systems Limited, 3125/95, unreported, the facts of which were very similar to the present case.

72. The argument is an interesting one, albeit on my primary findings it does not arise for decision. It is based on the proposition that it will offend the requirement of reasonable mitigation for the plaintiff to attempt to speculate at the defendant's expense in a fluctuating market by maintaining a claim for specific performance as opposed to earlier accepting the defendant's repudiation, thereby crystallising the point at which the damages are to be assessed by reference to the market price then prevailing. Mr Smith opposed this submission, submitting that the 'usual' rule should be applied, no doubt because, from his client's standpoint, if Mr Leong were held to be correct in this regard no loss would have accrued to the plaintiff given the 19 November 1997 market price of the Firstone shares.

73. In so far as this argument be of any relevance, and it follows from this judgment that I do not consider that it is, in any event I would have been disinclined in the circumstances of this case to depart from the so-called 'usual' rule. So that, had such been relevant, I would have assessed damages by reference to the date of breach, namely the market price as at 18 July 1997, as to which the relevant figures are in evidence and the mathematics easily done should the necessity have arisen. Whatever else may have been found as to the plaintiff's conduct, I am disinclined to hold in the circumstances that the timing of the pleading amendment abandoning specific performance signified the conclusion of a period of market speculation on the plaintiff's part, as represented by the maintenance of such plea. In other words, I should not have found, in the words of Santow J in Ronnoc Finance, op.cit., that such market speculation was "the most rational explanation for the Plaintiff's conduct in deferring acceptance of the repudiation...". I doubt very much whether in this case the timing of this amendment was other than mere happenstance. In this connection I bear in mind Mr Smith's observation that in terms of the pleading sequence in this case the claim against Tomei and Quick Motion was not actually made until after the amendment of the original pleading.

74. In my view, therefore, had liability gone the other way, damages in this case would have fallen to be assessed as at the market price prevailing as at the date of breach, namely 18 July 1997.

ORDER

75. As a result of the foregoing judgment, the Order of the court is therefore as follows :

1. The plaintiff's claim against the 3rd and 4th defendants is dismissed;

2. There be an order nisi that the plaintiff do pay the costs of this action against the 3rd and 4th defendants, such costs to be taxed if not agreed.

76. I see no reason to make any separate order on the defendants' counterclaim which, as Mr Leong pointed out early in the case, was so drawn in the event that the court were to hold that there was no right in the defendants to treat this contract as rescinded. Nor do I see any necessity formally to grant a declaration in the terms sought, although if required I will further hear counsel as to the form of the Order and as to costs.