CHAN SZE SZE GABRIELLE v. TU CHRISTOPHER

HCA 2125/2006 and HCA 2007/2005

(Consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2125 OF 2006

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(Consolidated pursuant to the Order of Master Au Yeung dated 27th February 2007)

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REASONS FOR JUDGMENT

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I. Introduction

1.  The trial of the Action and the Counterclaim was set down for 5 days from 5^th to 9^th January 2009.  The Defendant who was acting in person did not appear.  This was also the case for the 2 Pre-trial Reviews, and notice of the hearing dates for the trial was sent to the Defendant’s last known address by ordinary and registered post.  At the end of the hearing on 6 January, I gave judgment for the Plaintiff on her claim, dismissed the Defendant’s counterclaim, and awarded costs of and occasioned by the claim to the Plaintiff to be taxed under the Legal Aid Ordinance and Regulations, with costs of the Counterclaim to be payable by the Defendant.  I now give my reasons.

II. Background

2.  The undisputed background facts are as follows :-

(1)  The parties have been acquainted since 2001.  This case concerns arrangements whereby the Plaintiff was to act as the Defendant’s sole agent in the marketing and sale of several Chinese paintings (“the Paintings”), and the Defendant was to and did receive a loan of HK$3 million from the Plaintiff.

(2)  By a Loan Agreement dated 19.8.2005 (“the Loan Agreement”), the Plaintiff lent the Defendant HK$3 million.  According to the terms, the loan was to be repaid on or before 18.9.2005 (Clause 4.2).  If repayment was not effected by that date, interest would be payable in the sum of HK$60,000 on the 1^st day of each calendar month (Clause 3.1).  This reflected the 2% interest rate under Clause 1.3 of the loan agreement.  Any interest payments not made when due would be regarded as an advance, and would be deemed part of the Loan to which the provisions of Clause 3 would apply (Clause 3.2). 

(3)  The parties entered into to an Agency Agreement on the same date 19.8.2005 (“the Agency Agreement”), whereby the Plaintiff was appointed as the Defendant’s sole and exclusive worldwide agent for the marketing and sale of certain paintings (Clause 1).  The duration of the Agreement was 1 year (Clause 3).  The Plaintiff would receive commission of 1 per cent of the sale price of each Painting (Clause 4). 

(4)  As to the loan, it is undisputed that except for a sum of HK$60,000 paid on about 20.9.2005, the Defendant has not repaid the principal amount, nor interest.

(5)  As to the agency for marketing and sale of the Paintings, it is also undisputed that the Defendant ultimately appointed Christies to sell 22 of the 31 Paintings.  14 of those Paintings were eventually sold at auction.

III. Parties’ main Contentions

3.  The Plaintiff’s Consolidated Statement of Claim dated 5.3.2007 (“CSOC”) pleads :-

(1)  2 implied terms in the Agency Agreement; reasonable access to show the Paintings; and that the Defendant would not do any acts to hinder or frustrate the Plaintiff’s efforts as agent.

(2)  Rectification of the Loan Agreement as the parties had intended to delete Clause 3.2, instead of Clause 4.1.

(3)  The Defendant’s breach of the Agency Agreement by approaching and engaging Christies on about 22.8.2005 to sell the Paintings without the Plaintiff’s knowledge or consent; by refusing to sell or stipulate counter-offers; and/or by refusing access to the Plaintiff to show potential clients the Paintings since 22.8.2005.  As a result, loss and damage was suffered.

(4)  The Defendant has not paid any principal or interest due and owing, except the sole payment of HK$60,000 on 20.9.2005.

4.  The Defendant’s Consolidated Defence and Counterclaim (“D&CC”) pleads :-

(1)  The Defendant was not the owner of the Paintings and never held himself out as such.  He was however, entrusted with the possession of and entitled to utilise the proceeds derived from the sale of the Paintings.

(2)  As to the Agency Agreement, he maintains there were oral and written terms, inter alia, the Plaintiff :-

a.  had the knowhow and expertise in ascertaining the genuineness and true value of the Paintings;

b.  had the expertise and connections, and would use all due care and skill to ensure the Paintings would be sold at the best price; 

c.  had a duty to introduce purchasers who were genuinely interested to purchase the Paintings, and that she would use her best endeavours to sell at the best possible price.

d.  had a duty of care in similar terms.

(3)  As to the Loan Agreement, that the loan was to last for 1 year until 18.8.2006, rather than at the maturity date of 18.9.2005. 

(4)  He denies the Agreement should be rectified. 

(5)  He alleges that the loan is void, unenforceable, and/or not binding as the Plaintiff was a money lender without licence; and/or the loan was illegal as compound interest was provided for in Clause 3.2.  Alternatively, the Loan is only enforceable to such extent as the Court considers equitable.

(6)  As to the Agency Agreement, he alleges the Plaintiff was in breach and/or negligent because she :-

a.  advised to sell the whole lot of paintings for HK$3 million (and later HK$2.5 million), when 4 of the paintings drawn by Zhang Daqian were worth HK$5.66 million;

b.  failed and/or refused to properly advise the true value of the Paintings when she knew he was relying on her expertise;

c.  claimed the paintings by Zhang Daqian were fakes and attempted to induce him to sell on such basis.

(7)  He also alleges fraud as an alternative to negligence.

(8)  He alleges the Agency Agreement was terminated by reason of the above on 21.8.2005, and that in order to mitigate his loss, he appointed Christies to sell 22 of the 31 Paintings after such date.

(9)  He therefore :-

a.  denies liability to repay the principal and/or interest.

b.  counterclaims for HK$433,660 in damages being the difference between the amount of commission he would have paid had the paintings been sold, and the amount of commission actually paid to Christies; and interest.

5.  By a Reply and Defence to Counterclaim dated 19.3.2007 (“R&D”), the Plaintiff pleads :-

(1)  The Defendant is estopped from denying ownership of the Paintings because of clear statements in the Agency Agreement that he was the owner.

(2)  There were no oral terms in the Agency and/or Loan Agreements.

(3)  The Plaintiff is not a money lender nor carrying on such business or in any way caught by the provisions of the Money Lenders Ordinance, Cap 163.  Even if she is, the Court could exercise its powers under s.23 to enforce the Loan Agreement.

(4)  The Plaintiff did not repudiate the Agency Agreement, nor advise or persuade him to sell the Paintings at HK$3 million or HK$2.5 million.  Rather, she informed him of offers by possible buyers.

(5)  The Plaintiff never alleged that all the Paintings by Zhang Daqian were fakes.  The queries as to authenticity were limited and specific, and were statements made by third parties.  It was reasonable for her to relay those statements to him. 

6.  As stated in the Answers to 2 sets of Interrogatories on the Plaintiff, she contends that she :-

(1)  never lent substantial sums of money to anyone else, nor entered into agreements such as the ones in the present case.

(2)  never traded in drawings, antiques or art, but has a profound interest in art, and is well connected in the circle of collectors and art dealers.

(3)  has no qualifications regarding the authenticity and fineness of Chinese paintings, nor been engaged in the business of marketing and sale of these paintings.

The Agreements

7.  The relevant clauses in the Loan Agreement are important :-

(1)  “Subject to clause 4 below, the Loan shall be repaid by the Borrower at such time together with interest at a fixed and flat rate of 2% per month.” (Clause 1.3)

(2)  “The Borrower shall enter into a Sole and Exclusive Agency Agreement in the form as attached with the Lender.” (Clause 2.1)

(3)  “Interest on the Loan in the sum of HK$60,000.00 shall be payable by the Borrower to the Lender on the 1st day of each calendar month until and unless the whole amount of the Loan shall have been repaid on the Maturity Date as defined in Clause 4.2.” (Clause 3.1)

(4)  “Any interest which the Borrower fails to pay when due shall be regarded as an advance made by the Lender and be deemed as part of the Loan to which the provisions of this Clause 3 on interest shall apply.” (Clause 3.2) (emphasis added)

(5)  “If any of the following events occurs :

(i)  The Borrower fails to pay any sum due under this Agreement on the due date; or

(ii)  The Borrower is in breach of any terms herein or fails to undertake or perform its obligations hereunder; or

(iii)  Any indebtedness of the Borrower is not paid when due or becomes due and payable prior to its specified maturity or any creditor or creditors of the Borrower become entitled to declare any such indebtedness of the Borrower due and payable prior to its specified maturity … then the Lender shall be entitled to give a written notice to the Borrower to require repayment (forthwith or otherwise as the Lender may require) … with accrued interest …”; (Clause 4.1(i)–(iii))

(6)  “The Borrower may repay the whole of the Loan without penalty at any time provided that :

(i)  the repayment must be made on or before 18 September 2005 (the “Maturity Date”) and

(ii)  all outstanding interest on the Loan must be discharged at the same time of early repayment.” (Clause 4.2, emphasis added)

8.  The Agency Agreement provided :-

(1)  “TU CHRISTOPHER of Room 1834 Block 6 of Parkview, Tai Tam, Hong Kong (hereinafter called “the Owner’) of the one part” (Preamble, emphasis added)

(2)  WHEREAS the Owner is the owner of the paintings more particularly described and shown in the photographs printed in the Schedule hereto (hereinafter called “the Paintings”) and it is intended that the Paintings marketed and sold and the parties hereto have agreed to the appointment of the Agent as the sole and exclusive marketing agent of the Paintings in the world upon the terms and subject to the conditions hereinafter contained.” (3^rd Preamble, emphasis added)

(3)  “As sole and exclusive agent for the marketing and sale of the Paintings the Agent shall use her reasonable commercial endeavours to promote and market the Paintings, including but not limited to approach to potential purchasers.” (Clause 3)

(4)  “The agency of the Agent hereby granted shall be for a period of one year from the date hereof during which time the Owner shall not authorise any other party to market and/or sell the Paintings in any part of the world.” (Clause 3, emphasis added)

(5)  “The Owner shall supply all information and materials necessary for the Agent to effectively market and sell the Paintings.” (Clause 5, emphasis added)

(6)  “The Agent shall market and sell the Paintings at prices stipulated by the Owner.  The Agent is hereby authorized to sign all offer letters, acceptances, provisional agreements and other documents necessary to effect the Paintings at prices stipulated by the Owner.” (Clause 6, emphasis added)

(7)  “The Owner hereby acknowledge and consents that the Agent shall be entitled to obtain commission (if any) from the purchaser(s) of the Paintings or any of them at such rate as agreed between the Agent and the purchaser(s) in question.” (Clause 9)

(8)  “The Owner may by written notice to the Agent terminate this Agreement forthwith upon the occurrence of any of the following events :-

(i)  if the Agent commits any breach of its obligations hereunder and, where such breach is capable of being remedied, fails to remedy the same within 30 days of the service of a written notice by the Owner specifying such breach and requiring the same to be remedied; …

(ii)  if the Agent acts in a manner or engages in any conduct or practice which (whether with intention or not) injures or is likely to cause injury or detriment to the interest, goodwill or reputation of the Owner. (Clause 10)

IV. Issues

(A) Claim

9.  2 main issues arise on the Claim :-

(1)  On to the Loan Agreement, is there merit in the so-called “money lenders defences” pleaded by the Defendant?  Does the Plaintiff’s claim for rectification succeed?

(2)  Whether the Defendant was in breach of the Agency Agreement by engaging Christies and/or refusing access and information to the Plaintiff concerning the Paintings.

(B) Counterclaim

10.  3 main issues arise on the Counterclaim :-

(1)  The nature of the Plaintiff’s duties in contract and tort to the Defendant, and in particular whether the Plaintiff owed duties to advise the Defendant concerning the valuation of the Paintings and/or their authenticity.

(2)  Whether the Plaintiff was in breach of contract and/or negligent.

(3)  If so, whether the Defendant can claim for any loss and damage. 

The Defendant’s witness statement raises various matters which are not pleaded.  For instance, that the Plaintiff sought to make a secret profit; that the Plaintiff concealed various material information; and that the Plaintiff had a plot to deceive the Defendant.  As none of these matters have been pleaded, the Defendant cannot rely on them.

V.  Money Lenders Ordinance, Cap 163

11.  The relevant provisions are as follows :-

2. Interpretation

“money lender” means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include …”

a)  a person specified in Part 1 of Schedule 1; or

b)  as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan; (emphasis added)

22. Illegal agreements

(1)  “Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for -

(a)  the payment of compound interest;

(b)  prohibiting the repayment of the loan by instalments; or

(c)  the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement.”

23. Loans etc not recoverable unless money lender licensed

“No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed :

Provided that if the court is satisfied that in all the circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interest or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

25. Reopening of certain transactions

(3)  “Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; 24(1) …”

Schedule 1 Part 2 : Exempted Loans

“A loan made by a company or a firm or individual whose ordinary business does not primarily or mainly involve the leading of money, in the ordinary course of that business.” (emphasis added)

Here, a key question is whether the Plaintiff’s ordinary business involved being a money lender.

VI. Discussion

(A) The Claim

Main issue 1 : Money lenders defences

12.  It is common ground the loan of HK$3 million was advanced in August 2005, that no part of the principal has been repaid, nor any interest (except for 1 instalment of HK$60,000).

13.  The Defendant was therefore in plain breach of the Loan Agreement.  Principal and interest were payable on demand, subject to the money lenders defences.

14.  In my view, the Plaintiff was not a money lender for these reasons :-

(1)  Her evidence which I accept, is that she operated a restaurant at the relevant time, and was not and had never been engaged in the business of money lending.  Her ordinary course of business did not involve lending money, whether at the material time or at all.

(2)  The Defendant has not adduced any evidence, whether in his witness statement or otherwise, to show the Plaintiff was engaged in the money lending business.  Instead, he accepts has no knowledge about her business or background (his witness statement, §2-3).

(3)  In these circumstances, there is simply no evidence to support the allegation the Plaintiff is a money lender.

15.  Even if I am wrong and the Plaintiff was somehow a money lender, I would still exercise my discretion under s.23 to enforce the Loan Agreement for principal and outstanding interest at 2% per month to be payable until Judgment, having regard to all the circumstances and facts of the case as it would be inequitable not to recover such principal and interest :-

(1)  It is undisputed that the principal of $3 million and interest (save for HK$60,000) has not been repaid.

(2)  On the evidence, this is a substantial sum for a person in her position.  She is a single mother with 2 children to support; she lent out of friendship a substantial part of her savings expecting speedy repayment.  She even borrowed HK$1m from her friends to lend to the Defendant.

(3)  The Defendant is a self-professed merchant and stock investor – and apparently, a person of some means (§2 of his statement).

(4)  He gained a considerable amount from auctioning the Paintings at Christies.  As pleaded, he was and is entitled to the use of the sale proceeds – irrespective of who was the true owner.

On the other hand, on the evidence the Plaintiff is impecunious and suffering financial difficulty, at least partially owing to this litigation and the loan which remains unpaid.

(5)  All in all, it would be inequitable for the Defendant simply to be allowed to take the loan and not repay any sum.

Compound interest; rectification

16.  As to the pleading regarding the charging of compound interest :-

(1)  The Plaintiff has pleaded rectification of the Loan Agreement by deletion of Clause 3.2, the clause concerning compound interest.

(2)  Even if such rectification was not granted, this clause of itself would not invalidate or render the Loan Agreement unenforceable.  This is because under s.22(1), Cap 163 the only agreements which are strictly “illegal” by virtue of charging compound interest are those made “for the loan of money by a money lender”.  So long as the Court is convinced the Plaintiff is not a money lender, this section does not apply.

(3)  Further, even if I considered that s.22(1), Cap 163 is applicable, it states provision may be made that if default is made in payment upon the due date of any sum payable to the money lender under the agreement, the money lender shall be entitled to charge simple interest on that sum from the date of default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and that any interest so charged shall not be reckoned as interest charged in respect of the loan.

(4)  Moreover, the Court has the discretion to permit enforcement of the agreement if the court considers it inequitable not to do so (s.22(2), Cap 163).

17.  The evidence in support of the Plaintiff’s claim is as follows:-

Rectification

(1)  The Plaintiff has provided the reasoning and explanation for the circumstances in which the parties agreed to delete Clause 3.2.

(2)  Both parties signed the agreement at the Defendant’s Parkview apartment, after consultation with their respective solicitors.

(3)  I note that whilst he denies he consulted with or involved his solicitors (“Robertsons”), this is contradicted by the contemporaneous documentary evidence.  As can be seen, the Plaintiff’s then solicitors faxed the relevant draft agreements to Robertsons.

(4)  Robertsons was also the receiving party of the HK$2.5 million, as evidenced by the transfer document itself, and the confirmatory receipt faxed to them on 22.8.2005.

(5)  In my view, the Plaintiff was honest and forthcoming regarding the rectification sought. She stands to lose rather than gain anything in this manner, as the calculation of the interest would be lowered if the contract was on the basis of simple interest.  Nonetheless, she sought rectification as reflective of the true state of affairs.

Alternative to rectification

(6)  As explained above, the evidence does not support the bare allegation the Plaintiff is a money lender. Hence, the loan does not fall within s.22, Cap 163.

(7)  Even if the Court considers the provision applicable, it is apparent that the manner in which the Loan Agreement operates (particularly Clauses 1.3, 3.1 and 3.2 therein) are in direct compliance with the passage which allows for charging of simple interest in event of default on any sum due.

(8)  I rely on the factors in para 14 above in support of the Court’s discretion to rely on s.22(2), Cap 163 to enforce an agreement when it considers it would be inequitable not to do so.

Whether extortionate transaction

18.  Although not strictly necessary for my decision, pursuant to s.25, Cap 163 the Court has the discretion to reopen certain transactions which it considers “extortionate” (in any event, this is not pleaded by the Defendant) :-

(1)  For the purposes of s.25, a transaction is extortionate in circumstances where the debtor must make grossly exorbitant payments; or where the agreement otherwise contravenes ordinary principles of fair-dealing (s.25(2), Cap 163).

(2)  Under s.25(3), Cap 163 there is a rebuttable presumption that an agreement is extortionate if the effective interest rate is greater than 48% per annum.  The presumption can be rebutted upon consideration of all the circumstances of the agreement where it is shown the rate is not unreasonable nor unfair.  This includes considering the prevailing interest rate at the time the agreement was made (s.25(4), Cap 163), personal circumstances of the debtor and the financial pressures he was under (s.25(5), Cap 163), the degree of risk accepted by the lender, the relation between the parties, and whether there was any specious cash price (s.25(6), Cap 163). Each case must depend on its own facts.

(3)  On the evidence, the transaction involved a reasonable interest rate per annum calculated on the basis of Schedule 2, Cap 163 – certainly nowhere near the 48% mark specified in s.25(3), Cap 163.  In these circumstances, there is no need nor reason for this Court to reopen the transaction.

19.  The evidencein relation to s.25, Cap 163 and the interest rate is as follows:-

(1)  On the Plaintiff’s primary case (i.e. rectification succeeds and Clause 3.2 is not operative), the interest payments would be HK$60,000 per month.  The annual interest would thus be HK$720,000.  The per annum rate of interest on this calculation is 24% of HK$3 million (i.e HK$720,000 / HK$3,000,000 x 100 = 24%).

(2)  Even if this Court did not accept the case on rectification, the effective interest rate is calculated under Schedule  2, Cap 163, and would be 26.82%.

(3)  On either of these alternatives, this is a reasonable interest rate, agreed between the parties.  There is no reason why this Court should not enforce an agreement freely entered into by the Defendant.  The interest rate is certainly nowhere near the 48% mark specified in s.25(3), Cap 163 whereby the presumption would take effect.

(4)  In any event, the factors cited in para 14 above would also point to the fact this agreement was not extortionate.

Other reasons to enforce payment of loan and interest

20.  The evidence regarding the Loan Agreement is as follows :-

(1)  The maturity date expressly specified in Clause 4.2 was 18.9.2005.

(2)  Contrary to the Defendant’s allegation, there is no provision in the Loan Agreement that the loan would only be repaid after 1 year.

(3)  The mere fact the Agency Agreement was for a period of 1 year is neither nor there. It does not and cannot automatically mean the loan was for 1 year.  The Agreements are separate, even if related.

(4)  The Plaintiff’s evidence which I accept, was that the parties agreed to early or speedy repayment of the loan amount.

(5)  This is consistent with both parties’ evidence that the loan was required in order to allow the Defendant to take advantage of a property transaction which would soon be completed.

(6)  The Defendant’s suggestion that Clause 4.1(i) was deleted in order to render the maturity date to be 1 year from 19.8.2005 is simply not borne out by the document and surrounding circumstances.  If the parties really wanted to extend the maturity date, they would have amended Clause 4.2.

(7)  The more reasonable construction of the Loan and Agency Agreements consistent with the factual matrix, and taking into account the separate and operative functions of the agreements, is that the agency was to last for 1 year (as specified in the Agency Agreement), but the loan was a temporary and short-term arrangement (as per Clause 4.2).

Main issue 2 : whether Defendant in breach of Agency Agreement

21.  There is no doubt that on the proper construction of the Agency Agreement, the Defendant was in plain breach in arranging for the Paintings to be sold through Christies, and preventing reasonable access to the Plaintiff :-

(1)  Under the Agency Agreement, the Plaintiff was the “sole and exclusive agent” for the worldwide marketing and sale (Clauses 2, 3) – and no other person was authorized to market and sell the Paintings.

(2)  The Agency Agreement was for “1 year” (Clause 3).

(3)  The Defendant plainly failed to provide the Plaintiff all necessary information and material (Clause 5).  Such information would of course, include basic information such as the Paintings’ whereabouts. 

22.  As to the evidence concerning breach :-

(1)  It is undisputed that 22 of the Paintings were consigned to Christies at the very latest on 24.8.2005 – only shortly after the Agency Agreement dated 19.8.05.  14 Paintings were sold within the 1 year period of the agency.

(2)  On consideration of Christies Schedules of Property, it is striking they were able to provide definite and exact reserve and auction estimates for such a large number of Paintings.  It is therefore reasonable to assume the Defendant provided them access to the Paintings on or before 24.8.2005 – in order to conduct these valuations.  This refutes his case the Paintings were first sent to Christies on 24.8.2005.

(3)  The Defendant has adduced no evidence to support the case that the Plaintiff first breached the agreement, and that it had been terminated by 21.8.2005.

(4)  In any event, his case is inconsistent with the documentary evidence.  Had the Agency Agreement been terminated on 21.8.2005 (as he alleges) and the parties fallen out, they would not be on amicable terms and consequently, would not have arranged for the proof of the transfer to be faxed to Robertsons on 22.8.2005.  That day was a Monday, presumably the first opportunity following 19.8.2005 for the solicitor to release the Plaintiff’s funds to the Defendant.

(5)  The Plaintiff’s evidence clearly states the Defendant called her on 22.8.2005 to ask her to fax proof of her transfer of the HK$2.5 million into Robertsons’ account.  Such fax was duly arranged, and is evidenced by clear documentary proof.

(6)  The Defendant admits that since 22.8.2005, he did not allow her access to the Paintings.

(7)  In the circumstances, this Court is inclined to accept the Plaintiff’s case that once the Defendant had his temporary cash flow alleviated by receipt of her money, he was no longer keen to sell the Paintings quickly.  He thus chose to have his cake and eat it : to then breach the Agency Agreement – in order to get a higher price for the Paintings at public auction.

23.  Therefore, unless the Defendant can show the Agency Agreement was validly terminated prior to his conduct above, he has no defence to the Claim.  For reasons below, he has not shown any good ground for termination.  

Ownership of Paintings

24.  The Defence case is that the paintings were owned by his grandmother, and he was simply acting as her agent.

25.  This is unsupported by the evidence :-

(1)  He did not so state or represent to the Plaintiff.  On the contrary, his evidence shows he held himself out as the owner.

(2)  There is no documentary evidence before the Court indicating he was not the owner.  He has not produced for example, any documents relating to probate or administration of his grandfather’s estate or the like.  His grandmother has not given any evidence to support his case.

(3)  The Agency Agreement expressly identified him twice as the owner.

(4)  Even if his grandmother was the true owner, she would have been an undisclosed principal.  It is trite that when a principal is undisclosed at the time of contracting, the contract is made with the agent : Bowstead & Reynolds on Agency, 18th ed., §9-012.

(5)  It is also trite that with a written contract, the Court will look to the terms to consider whether upon its true construction, the agent was the contracting party.  Generally, if the contract is signed by the agent in his own name without qualification, he is deemed to have contracted personally, unless a contrary intention plainly appears from other parts of the document : Bowstead & Reynolds, §§9-036 – 9-037; The Transcontinental Underwriting Agency SRL v Grand Union Insurance Co Ltd [1987] 2 Ll Rep 409 at 413(2).

(6)  Defendant clearly signed the Agency Agreement in his own name.  There are no other indicators that he was not the owner or that he was contracting on behalf of anyone else.

(7)  Further, he pleaded that he was entitled to the use of the sale proceeds.  The more reasonable interpretation of the contractual relations is that he was the party benefiting from the agreements (both in obtaining the loan and the eventual outcome of the sale of the Paintings).

(8)  For the reasons in sub-paragraphs (1) to (7) above, I also consider he is estopped by his own representation and conduct, from now asserting this allegation.

(B) Counterclaim

Main issue (1) : Plaintiff’s duties in contract and tort

26.  The Plaintiff’s contractual duties are clear from the Agency Agreement :-

(1)  To provide and market the Paintings, using her reasonable commercial endeavours (Clause 2).

(2)  As to the prices, the Plaintiff was to market and sell at prices stipulated by the owner (Clause 6). 

27.  It is clear from the Agency Agreement there is no express contractual duty on the Plaintiff to advise or possess knowledge and expertise concerning : (1) the valuation of the Paintings; and (2) their authenticity.  Since the Agency Agreement is silent on these matters, the question arises whether any such duties are implied.

28.  There is no room for any such implication :-

(1)  The test for implication of terms is essentially one of necessity, i.e. without such a term the contract will not work.

(2)  There is no necessity to imply into the contract terms pertaining to knowledge and/or expertise concerning authenticity and value.  The terms of the Agency Agreement are clear and relate to marketing and sale.  Such services do not necessarily involve expertise concerning authenticity and value.  There is a distinction to be drawn between expertise as to authenticity and value, as opposed to good connections and marketing skills.  The contractual scope and ambit of the Plaintiff’s duties concern the latter.

(3)  As to the factual matrix, on the evidence :-

a.  The Defendant himself acknowledged the Plaintiff “knows quite a lot of people”. (§2 his statement)

b.  She was able to bring numerous potential buyers to his residence at Parkview, to view the Paintings at short notice. This is not disputed.

c.  She never represented nor held herself out to be any expert, let alone on authenticity or valuation.  If she had, one would expect this to appear in the Agency Agreement.  She was simply running a restaurant.  This had nothing to do with valuation and authenticity of artwork.

d.  The parties were friends.  They had not met via business relating to art or artwork authenticity or valuation.  They had never been engaged in any sort of business deals prior to the loan and agency arrangements.

(4)  It is clear the contractual arrangement allowed the Defendant access to cash at short notice – for him to alleviate his cash flow problems and enter into a property transaction.  The Agency Agreement also allowed him to use the Plaintiff’s connections.

(5)  The above is underscored by the terms of the Agency Agreement set out above.  In essence, upon a proper construction of the Agency Agreement, the Defendant wished to use the Plaintiff’s connections to sell the Paintings as part of a private deal.

(6)  I also note that any purported termination did not comply with Clause 10 of the Agency Agreement.

(7)  On the evidence, the Defendant was anxious to receive a loan of HK$3 million, and timing was important for his property transaction.  Obviously, Christies would not be providing a loan of HK$3 million, unlike the Plaintiff.  Further, there is no good ground to challenge or set aside the Agency Agreement as somehow not binding, or as manifestly to the Defendant’s disadvantage.

29.  No duty of care arose in tort to advise the Defendant concerning the valuation and authenticity of the Paintings :-

(1)  In law, there may in certain cases be concurrent rights and duties in contract and tort : Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1984] AC 80 [P.C.], at 107; Henderson v Merrett Syndicates Ltd [1995] AC 145 [H.L.], at 178B-181F & 193G-194B).  In order for any duty in tort to be established, there must be : (a) an assumption of responsibility, (b) recognition that the party assuming such responsibility has “special skills”, and (c) which the complainant relies on.

(2)  The evidence shows :-

(a)  The Plaintiff did not assume any such responsibility.  The parties’ relationship was governed by their contracts.  In general, any duties in tort cannot exceed or go beyond those prescribed in contract.

(b)  Even if there were such assumption, there was no special skill in relation to expertise or knowledge on authenticity or value which the Plaintiff professed to have and which formed part of her duties.

(c)  The Defendant relied on the Plaintiff’s connections, as opposed to any special skills.

(3)  On the facts, no duty of care in tort is established.

(4)  In any event, she denies she ever made the representation that all of Zhang Daqin’s paintings were fake.  She simply communicated relevant offers and information from potential buyers.

(5)  The Defendant’s own evidence shows that it was “David” (and not the Plaintiff) – who related to him that 1 of Qi Bashi’s paintings, 2 of Tang’s paintings, and the “DunHuang” painting by Zhang was problematic.  (Defendant’s statement §10).  Moreover, this information was conveyed to him before he signed the Agency Agreement on 19.8.2005.  In short, it appears he went into the contracts with the Plaintiff with his eyes open on the possibility there were certain paintings with problematic authenticity and value.

(6)  Moreover, it is odd why only 22 of the 31 Paintings were consigned to Christies.  The “DunHuang” painting which had been queried was not consigned to Christies.  This indicates the Defendant may have had knowledge of some authenticity issues.

30.  Nor am I prepared to find fraud, in the absence of proper evidence.  It is trite fraud must be clearly proved :-

“… fraud is proved when it is shown that a false representation has been made: (1) knowingly; or (2) without belief in its truth; or (3) recklessly, careless whether it be true or false.” (Derry v Peek (1889) 14 App. Cas. 337, per Lord Herschell, cited in Chitty, §6-043).

(2) Issue 2 : whether Plaintiff in breach of duty

31.  It follows from the above that the Plaintiff was not in breach of any contractual or tortious duty to provide advice or possess knowledge concerning the value and authenticity of the Paintings.  No question of breach of duty arises, nor of serious or fundamental breach to give rise to a repudiatory breach which the Defendant could accept.  Since a repudiatory breach is the foundation of the Defendant’s case for arranging sale through Christies and refusing access to the Plaintiff, it follows there is no defence to the claim nor any good counterclaim.

32.  On the evidence, there was no written notice of termination, pursuant to Clause 10.  Nor has any such notice been pleaded.  Even if (which do not accept), an oral as opposed to written notice was sufficient, there is no evidence before me of any sound basis for termination.

Issue 3 : loss and damage

33.  It follows the Plaintiff is not liable for any loss and damage suffered (if any) by the Defendant.

(C) Evidence

34.  I also find the Plaintiff’s evidence is credible, and largely consistent with the contemporaneous documents. 

35.  Since the Defendant was absent, I attach little significance to his witness statement which was not subject to cross examination.  I also find the Defendant’s case is less credible and less consistent with the contemporaneous documents.  A few examples :- 

(1)  In the Agency Agreement, the Preamble states twice that the Defendant is “the owner” of the Paintings.  However, he denies this in his witness statement (at §6).  I give more weight to the contemporaneous documents.

(2)  He contends in his witness statement (at §13) that he did not obtain legal advice prior to signing the Loan and Agency Agreements.  However, his evidence is inconsistent with the contemporaneous documents : the Plaintiff’s solicitors’ fax dated 19.08.05 attached the draft Agency and Loan Agreements to the Defendant’s solicitors Robertsons for their comments.

(3)  The Defendant maintains that under the Loan Agreement, the term of the loan was 1 year (witness statement §26 and 29).  However, any such case is unsupported by the Loan Agreement.

36.  Where there is any inconsistency between the cases and evidence of the parties, I prefer the Plaintiff’s evidence and case on the balance of probabilities.

VII. Conclusion  

37.  I therefore made the following orders on the Claim :-

(1)  There be judgment for the Plaintiff in the sum of HK$3 million.

(2)  There be contractual interest at 2% per month from 1 October 2005, the month following the interest instalment paid, until judgment on 6^th January 2009, and thereafter interest at the judgment rate until full payment.

(3)  Damages for breach of the Agency Agreement to be assessed.

(4)  The Loan Agreement dated 19.08.05 be rectified by deleting Clause 3.2 and reinstating clauses 4, 4.1, and sub paragraph (i) thereto.

(5)  Costs of the Action be to the Plaintiff to be taxed on a party and party basis, with the Plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations, Cap. 91.

38.  For all the reasons above, I dismissed the Counterclaim and ordered the Defendant to pay the Plaintiff’s costs of the Counterclaim to be taxed on a party and party basis.