NEW WORLD DEVELOPMENT CO LTD AND ANOTHER v. SUN HUNG KAI SECURITIES LTD

Court: Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Mortimer NPJ and Sir Gerard Brennan NPJ

Dates of Hearing:  19 – 21 June 2006

_______________________

 J U D G M E N T

_______________________

Mr Justice Bokhary PJ:

1.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Chan PJ:

2.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

A. The decisions below

3.  After a 15-day trial, Deputy High Court Judge To held that the defendant, Sun Hung Kai Securities Limited (“SHKS”), was indebted to the 1^st plaintiff, New World Development Limited (“NWD”), in the sum of HK$80,117,652.72 pursuant to an agreement entered into between them for SHKS’ indirect participation in a joint venture to develop two hotels in Malaysia.  Apart from costs, he also awarded interest which, running up to 16 December 1998, came to the sum of HK$25,416,365.50, with interest thereafter ordered to be paid at the judgment rate (HCA 3191/1999 consolidated with HCA 21961/1998, 1 April 2004). 

4.  The Court of Appeal dismissed the appeal subject only to its substituting for the order regarding post-16 December 1998 interest, an order for such interest to be paid at the prime rate until the date of judgment and thereafter at the judgment rate (CACV 205/2004 and CACV 210/2004, Rogers VP, Le Pichon JA and Burrell J, 29 June 2005).

5.  Leave to bring the present appeal was granted by the Court of Appeal pursuant to s 22(1)(a) of the Court’s statute.

B. SHKS’s case below and on this appeal

6.  The joint venture was entered into between NWD and a Malaysian public company called IGB Corporation Berhad (“IGB”).  It was carried out through a company known as Great Union Properties Sendirian Berhad (“GUP”) which owns the land and hotels in question and whose shares were allotted to NWD and IGB in equal shares.  The joint venture began life in April 1990 and the development took place over the next six years or so, with the two hotels opening in mid-1996.

7.  It is common ground that (as a result of events considered below) SHKS acquired a beneficial interest in 12.5% of the shares in GUP.  But it was  SHKS’s case in the courts below that the parties had expressly agreed that its participation was confined to that share acquisition and that it had not undertaken any further participation in the joint venture, an arrangement that was referred to as the “dai chong” (地莊) or “table limit” understanding, using a concept apparently familiar to card players. 

8.  The Judge rejected SHKS’s case and found that, as NWD alleges, there came into existence in April 1990, an oral contract whereby SHKS agreed to participate by contributing 50% of the investment NWD was required to make in the Malaysian joint venture for a 50% share of any returns accruing to NWD therefrom.  Subsequently, the parties agreed to SHKS’s participation being reduced to 25% of NWD’s 50% interest (amounting to an indirect interest in 12.5% of the project as a whole), reflected in SHKS’s entitlement to a beneficial interest in 12.5% of the shares in GUP.  It was held that by this oral agreement, SHKS had undertaken an obligation to reimburse NWD for SHKS’s proportionate share of all joint venture payments made by NWD comprising payments by way of subscription for shares in GUP, of shareholders’ loans and of expenses advanced to GUP for the purposes of the joint venture.  SHKS’s unpaid portion of such sums was found to total HK$80,117,652.72, which is the principal sum awarded by the Judge, mentioned above.

9.  Mr Michael Thomas SC, appearing with Mr Jin Pao for SHKS, acknowledges that SHKS must accept the Judge’s findings.  However, he argues that the Judge was wrong to conclude that an enforceable oral agreement along the lines contended for by NWD had been established.  He submits that on the evidence the Judge ought to have held:

(a) that the parties lacked the necessary intention to create legal relations;

(b) alternatively, that viewed objectively, any agreement reached was so uncertain or incomplete that it could not in law constitute an enforceable contract (“the uncertainty argument”);

(c) or alternatively, that if the parties succeeded in creating a binding contract (and notwithstanding the court’s rejection of any express “dai chong” understanding) it could, objectively viewed, only amount to an agreement for SHKS to acquire the relevant GUP shares without attracting any obligation to make further contributions to the joint venture (“the limited obligation argument”).

10.  There was some discussion at the hearing as to whether Mr Thomas was precluded from advancing these arguments by the well-established practice of the Court explained in Sky Heart Ltd v Lee Hysan Co Ltd (1997-98) 1 HKCFAR 318, whereby it refuses to disturb concurrent findings of fact made by the courts below.  It is a practice to which the Court closely adheres.  However, in the present case, Mr Thomas contended that even if (which he does not accept) material concurrent findings were made by the courts below, he is entitled to challenge them on the footing that the evidence did not justify those findings.  The Court permitted Mr Thomas to develop his submissions and it will accordingly be necessary to test those submissions against a detailed review of the evidence.

11.  Mr Thomas also advanced three separate criticisms of the judgments below which arise only if he fails on his main argument (and the finding that SHKS was contractually bound to reimburse NWD is upheld), namely:

(a) that a significant part of NWD’s claim ought in any event to have been held to be barred by limitation (“the limitation argument”);

(b) that the quantum of the claim was not properly established and should not have been accepted (“the quantum argument”); and,

(c)  that the Judge did not properly exercise his discretion in making his award of interest in that he lacked a proper evidential basis for such award (“the interest argument”).

12.  Additionally, SHKS asserted a counterclaim dealt with in Section J below.

C. Intention to create legal relations

13.  Mr Thomas endeavoured to argue that the evidence dictates a finding that in their dealings with each other in April 1990 and thereafter, the parties lacked any intention to bring a contract into existence but were “merely talking about possible future business”.  I cannot accept that contention.

14.  Parties reaching an express agreement of a commercial character are presumed to intend it to have legal effect unless the contrary is shown: Rose and Frank Company v J R Crompton & Bros Ltd [1923] 2 KB 261 at 288.  In such cases, assuming that the other requirements for constituting a contract are present, it is clear that “the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one”:  Edwards v Skyways Ltd [1964] 1 WLR 349 at 355.  “In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it”: Chitty on Contracts (29^th Ed, Sweet & Maxwell), §2-154; and see Kingswood Estate Co v Anderson [1963] 2 QB 169 at 181.

15.  The Judge found that in April 1990 the parties entered into an express agreement which was obviously commercial in nature.  Its terms were much in dispute at the trial.  But the evidence (examined below) clearly shows that both sides acted throughout on the basis that their agreement had given rise to enforceable contractual obligations at the very least for SHKS to pay for and hence to acquire an interest in GUP shares.  SHKS falls far short of discharging the heavy onus of showing that the parties lacked contractual intention, the evidence being all the other way.

D. The uncertainty argument

16.  I turn next to the contention that the oral agreement arrived at by the parties in April 1990 is so incomplete or uncertain that it cannot in law constitute a binding contract.

D.(i)  The persons involved

17.  By April 1990, negotiations between NWD and IGB on the Malaysian joint venture were well-advanced.  Mr Henry Cheng Kar Shun (“Henry Cheng”), then NWD’s managing director, was ultimately in charge on behalf of NWD.  The existence of such negotiations became known in the market and various persons approached Henry Cheng to discuss possible participation in the proposed joint venture, the perception then being that a hotel investment in Kuala Lumpur was an attractive business proposition.

18.  One such person was Mr Tony Fung Wing Cheung (“Tony Fung”), then chairman and managing director of Sun Hung Kai & Co (“SHK”) and also executive chairman of SHKS which was a listed company within the SHK group.  The two men were old friends who had done a number of business transactions together.  As Henry Cheng put it in his witness statement (which stood as his evidence-in-chief):

“...... I had known Tony Fung and his father for some 30 years and I trusted him to be a man of his word.”

And in his witness statement, Tony Fung stated:

“I have known [Henry Cheng] since we were children.  For many years now, we have met socially one to two times a week, sometimes more, sometimes less.  We regularly play golf and cards together. ...... Over the years, we have discussed many actual or potential business opportunities and we have been involved together in a considerable number of business transactions.”

19.  The closeness of their relationship is further indicated by the fact that until 1996, Henry Cheng was also a non-executive director of SHKS.

D.(ii) The evidence relating to the  oral agreement

20.  The account of the oral agreement given in Henry Cheng’s witness statement is as follows:

“In April 1990, Tony Fung ...... made request to me for [SHK’s] participation with [NWD] at a sharing of 50:50 for [NWD’s] share in the Project.  In other words [SHK] would take a 25% interest in the Project.  We agreed verbally that [SHK] would take a 25% interest of the entire costs of the Project and the precise structure of holding such interest would be agreed subsequently between the two parties.”

21.  In cross-examination, Henry Cheng explained that he and Tony Fung had had some initial discussions in which he had given the latter information about the project and that they had then reached firm agreement on the telephone regarding SHKS’s participation.  Asked about the content of the telephone discussion, Henry Cheng stated:

“...... Because I was a familiar friend with Mr Fung, a good friend of his, Mr Fung at that time on the phone said that he wanted to take the 50 per cent of my share, which means 25 per cent of the whole project. But I then asked him whether he would like to have 25 per cent of my share, instead of 50, which means 12.5 per cent of the whole project.  I have told him that there are other people who wanted to join in, and I wanted to entertain my friends with some of the shares. I remember very clearly that Mr Fung told me one thing.  He said he wanted all of it from me.  What I mean is, 50 per cent of my share, because otherwise he would not have enough to share out.  Because he insisted that, eventually on the phone we agreed that I gave him the 50 per cent. Also on the phone, as Mr Fung knew briefly about the project already, I told him that we have to pay money -- we have to pay the costs according to the proportion. That means whatever it needs to develop the project, we would share in the ratio as mentioned.  We would share the same risk, according to that ratio.” 

22.  Asked if they had discussed the form the funding would take, Henry Cheng replied in the negative, stating that this was not considered an important matter:

“Q. ......As to funding of the hotel project, when you had your conversation, as you have it, on the telephone with Tony Fung, did you deal with whether the funding would be by way of project funding, project loans, or by equity funding, or did you deal with how the funding was going to be organised? 

A.      It was not discussed. 

Q.   Did you understand that that matter would be left to be  worked out later between you? 

A.      It was not discussed because both us, as an investor, or Tony Fung as an investor, does not care how much is equity fund, how much is shareholder loan.  This is just a technical problem.  This is just to deal with the tax problem or to meet the local requirements. As to how much would be the equity or how much would be the loan, from an investor’s point of view we pay the same amount of money.  The problem is how to deal with it in the books.  As an investor's angle, we would not be concerned with this problem.”

23.  It is clear that in entering into the oral agreement, SHKS had been informed of the essential features of the intended Malaysian joint venture which had by then largely been settled between NWD and IGB.  When, shortly after the parties had reached agreement, SHKS received from NWD a copy of the Memorandum of Agreement in the afternoon of 11 April 1990 (which NWD had signed with IGB that very morning), SHKS immediately sent a cheque to NWD covering its half-share of the deposit payable by NWD.  Mr John Yip Ying Chee (“John Yip”), then an executive director and the chief operating officer of SHK, issued the payment instruction noting SHKS’ liability to contribute pursuant to its agreement with NWD in the following terms:

“According to the Memorandum of Agreement between New World Development Co. Ltd. and IGB Corporation Berhad, a 10% deposit of M$4,250,000 shall be paid on the date of the execution of this Memorandum.  The Memorandum was executed this morning.  It was agreed between New World and Sun Hung Kai that Sun Hung Kai will procure investors for 50% of the interest and the remaining 50% retained by New World.  Accordingly, Sun Hung Kai has to advance HK$6,075,587.50 (i.e. ½ of M$4,250,000 @ 2.8591).”

24.  The essential features of the intended joint venture as set out in the Memorandum of Agreement were that:-

(a) NWD and IGB would jointly develop two international hotels on a site (of not less than 110,000 sq ft carrying development rights of at least 1 million sq ft) owned by IGB in Kuala Lumpur through a joint venture company (referred to as “Newco” in the document, later identified as GUP).

(b) Newco would be capitalized by the injection of the land owned by IGB and valued at M$85 million for which Newco would issue 85 million shares with a par value of M$1.00.

(c) Newco would allot 42.5m shares to IGB credited as fully paid in consideration of half of the land injected.  The same number of shares would be allotted to NWD for M$42.5 million in cash which would be used to pay IGB the balance of the value of the land.  In respect of that sum, a 10% deposit of M$4.25 million was payable by NWD on signing the Memorandum of Agreement, a further 10% deposit on the signing of the shareholders agreement to be drawn up (“the Shareholders Agreement”), and the balance of M$34 million on a date linked to the obtaining of planning permission.

(d) IGB was to procure the necessary planning and other regulatory permissions and, in the course of construction, NWD would act as “hotel and construction advisor” and IGB as project manager, with the construction contracts to be let on open tender.  The parties to the joint venture would eventually enter into hotel management contracts with NWD or its nominees for the operation of the hotels (NWD being an experienced hotel operator).

(e) Of particular relevance to these proceedings, it was expressly provided that: “The total acquisition and construction costs of and relating to the Hotels will be borne by both parties equally either by equity funding or bank borrowing.”

25.  The joint venture was of course at its very inception.  The Memorandum of Agreement was subject to various conditions, including execution of the Shareholders Agreement and obtaining board approvals and governmental permissions.  However, NWD’s case, which was accepted, was that as between NWD and SHKS, the oral agreement entered into in April 1990 was itself unconditional and binding:  Knowing the essential features of the intended joint venture, SHKS unconditionally agreed to contribute half of any payments due from NWD in consideration of receiving a half-share of any returns from the joint venture attributable to NWD.  Of course, if the joint venture had floundered, for example by government permissions being refused, their oral agreement might be frustrated and come to nothing in commercial terms.  And if it were to turn out to be a bad investment, the returns might be poor.  But none of this derogates from NWD’s contention that, in April 1990, the parties reached a concluded contract to share the risks and rewards of the Malaysian joint venture.

26.  It is noteworthy that Tony Fung did not suggest that he and Henry Cheng were merely discussing possible future business or that the agreement they had reached was in any way uncertain or incomplete.  On the contrary, his assertion (rejected by the Judge) was that they had expressly and clearly agreed that SHKS’s participation would be limited on the basis of a “dai chong” understanding.  This is put in Tony Fung’s witness statement as follows:

“I spoke to [Henry Cheng] and indicated that SHKS wanted to participate in the investment.  [Henry Cheng] welcomed my idea and we agreed that SHKS would participate 25% in it with reference to the value of the land at that time. ...... In my discussion with [Henry Cheng], I used the term (地莊) (Dai Chong) which means ‘table limit’, a term well understood by card players, to define SHKS’ financial exposures in the investment.  I have no doubt in my mind that SHKS’ contribution to the investment was confined to its money paid out on 25% on land value and no more.”

27.  Tony Fung articulated this succinctly in cross-examination:

“The understanding was that the amount of our commitment was limited to the land cost.”

D.(iii)   The legal principles concerning incomplete and uncertain agreements

28.  The principle for deciding when an agreement is incomplete in a manner which prevents it from being a legally binding contract was stated by Viscount Dunedin in the House of Lords in May and Butcher Ltd v R [1934] 2 KB 17 at 21 (Note) as follows:

“To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties.”

29.  It is therefore important to note that an agreement is not incomplete in this fatal sense merely because it “leaves something which still has to be determined”.  It is often possible for the court to discern in the parties’ agreement the intended principles, criteria or machinery, express or implied, for determining specific contractual rights and liabilities without requiring the parties to arrive at further agreement.  Where this is possible, the agreement is not “incomplete”.  This was the approach of Maugham LJ in Foley v Classique Coaches Ltd [1934] 2 KB 1 at 13, although his Lordship stated the proposition in negative terms:

“It is indisputable that unless all the material terms of the contract are agreed there is no binding obligation.  An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it.”

30.  As pointed out in Chitty on Contracts, op cit, §2-129, the machinery provided by an agreement for resolving matters as yet undetermined may sometimes leave the question “to be resolved by the decision of one party: for example, a term by which interest rates are expressed to be variable on notification by the creditor ...... though the creditor’s power to set interest rates under such a contract is limited by an implied term that he must not exercise it ‘dishonestly, for an improper purpose, capriciously or arbitrarily.’” (cf Nash & Ors v Paragon Finance Ltd [2001] EWCA Civ 1466)

31.  Similarly, an agreement may be held to fail for uncertainty.  This is where the parties have expressed themselves in language that is too uncertain, vague or unintelligible to make their agreement legally enforceable.  In G Scammell & Nephew Ltd v Ouston [1941] AC 251, Lord Wright explained the principle in the following terms:

[The court will hold that there is no contract where] “the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found.” (at 268) 

32.  The courts will endeavour to find practical meaning in commercial agreements and are reluctant to strike down as too vague and uncertain agreements which businessmen have made and acted upon.  Thus, to cite Lord Wright once more, this time in Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L Rep 359 at 367:

“Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects, but, on the contrary, the Court should seek to apply the old maxim of English law verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the Court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as, for instance, the implication of what is just and reasonable to be ascertained by the Court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail.”

D.(iv)  Application of these principles

33.  The suggestion that the agreement between NWD and SHKS was too uncertain or too incomplete to be legally enforceable is not found in SHKS’s original defence.  It was only introduced by an amendment dated 15 March 2002, which is about 12 years after the oral agreement was made and some six years after the hotels had been completed and commenced operation.  At the trial, Tony Fung did not assert that there was no agreement, or that he had no understanding of what the agreement was because of its vagueness or obscurity, nor did he say that it was unworkable because it was incomplete in some fundamental sense: he nailed his colours to the mast of a concluded agreement limited by a “dai chong” understanding.  And as appears from the evidence (examined below) both parties acted throughout on the basis that SHKS had become an indirect investor in the joint venture, having paid a total of some HK$35.3 million in respect thereof.  Even now, SHKS asserts its rights as beneficial owner of 12.5% of the shares in GUP. 

34.  It is therefore plain that the uncertainty argument (and even more so, the argument that the parties lacked an intention to create legal relations) is purely a lawyers’ construct and does not reflect the way the businessmen concerned viewed the arrangement they had made between themselves.  While it is of course possible that they had wholly misunderstood their mutual position, an uncertainty argument mounted in such circumstances must be examined with considerable scepticism and reserve.

35.  What then is the agreement said to be legally incomplete or uncertain?  As stated above, the Judge found that it was an oral contract whereby SHKS agreed to participate by contributing 50% of the investment NWD was required to make in the Malaysian joint venture for a 50% share of any returns accruing to NWD therefrom.  As to funding, he found that:

“The essence conveyed by [the telephone conversation between Henry Cheng and Tony Fung] is that in addition to contributing to 25% of the land cost, SHKS had to contribute to the development costs required over and above that [which] would be available by bank financing, ie third party financing, either by way of equity funding, ie funding by way of share capital, or by way of shareholders loans.” (§80)

36.  It is true that the Judge went on to discuss the possible implication of terms in the oral agreement on a legally doubtful basis (by suggesting some form of incorporation of the terms of the Shareholders Agreement: §86), but that was an unnecessary discussion which does not affect the primary findings regarding the oral agreement arrived at in April 1990.

37.  That agreement, as Rogers VP pointed out, was “a very simple oral agreement”.  He saw no reason for it to be regarded uncertain:

“......I see no reason why an enforceable contract should not be made between two parties on the simple basis that one party would take half the interest in a project and bear half the costs, leaving it to the other party to undertake all the work in relation to that project and arrange things in the best way he could for both parties.” (§20)

38.  I respectfully agree.  Applying the principles discussed, there is no question of the parties having expressed themselves in a vague, obscure or unintelligible manner.  There is no difficulty in ascribing a precise and definite meaning to what it was they had agreed, reflecting the simple concept of SHKS sharing NWD’s risks and rewards arising out of the joint venture.  From the very start, SHKS knew exactly what was required and did not hesitate in writing the cheque for its share of the first deposit.  There is no legal uncertainty.

39.  Neither was the agreement incomplete in any essential respect.  Simplicity should not be mistaken for incompleteness.  Both parties understood that SHKS would seek to on-sell all or most of its participation in the joint venture to possible investors, with a view to making a fee or commission in the process.  It therefore entered into the oral agreement principally to acquire an interest to on-sell and without expecting to be involved or fully involved in the joint venture for its duration.  As the Judge found, it did not envisage becoming involved other than as a passive investor.  In the meantime, it was content that NWD should progress the joint venture along the lines indicated in the Memorandum of Agreement which reflected SHKS’s understanding of the project at the time of the oral agreement. 

40.  Mr Thomas suggested that such an arrangement would be uncommercial.  I do not agree.  Tony Fung trusted Henry Cheng and knew that NWD could be relied on to safeguard its own interests in the joint venture, thereby safeguarding SHKS’ like interests.  If NWD were to make a joint venture payment it could safely be assumed that such payment was properly called for so that SHKS ought to contribute its share.  The agreement to discharge its proportionate share of NWD’s obligations in the joint venture and to enjoy its proportionate share of its returns was the simple criterion, contractually certain and complete, enabling SHKS to determine, without further agreement with NWD, what its obligations were as and when they arose, and what rights it enjoyed in the fruits of the joint venture.  There were certain matters left by NWD and SHKS for future determination, in particular, as to whether SHKS would become a registered holder of shares in the Malaysian joint venture company (subsequently identified as GUP) or whether its interest would be indirectly held through a nominee.  However, such matters were not considered important, as Henry Cheng testified and as the subsequent conduct of the parties (mentioned below) confirms.

41.  Mr Thomas sought to argue that the arrangement was incomplete or uncertain since, at the time of the oral agreement, the “prime movers”, that is, NWD and IGB, had yet to agree on their own mutual obligations.  With respect, that confuses the two agreements.  As previously noted, the fact that in April 1990 the joint venture between NWD and IGB was still conditional and would require other matters to be settled by further agreement does not derogate from NWD and SHK themselves having arrived at a concluded contract.  Their mutual rights and obligations relating to the anticipated implementation of the Malaysian joint venture were capable of being ascertained without further agreement. 

42.  Mr Thomas also contended that there was plainly uncertainty in that a host of questions had not been determined as to the precise role SHKS would play in the Malaysian joint venture.  Answers had not been provided to questions such as whether SHKS would have a seat on the board of the joint venture company, whether it had a right to be consulted in advance on important strategic and operational questions, and so forth.  He argued that until SHKS was “put into the main joint venture”, ie, made a direct shareholder and participant in the joint venture company, it would inevitably be left in a state of uncertainty as to its rights and obligations. 

43.  I do not accept that argument.  It proceeds on the premise that the parties were attempting (but failed) to reach a detailed agreement as to how SHKS would directly participate in the joint venture which would involve working out its position not merely vis-à-vis NWD but also IGB.  But that is not what the parties were seeking to achieve, as revealed in the evidence and found by the courts below.  Henry Cheng and Tony Fung sought to reach and succeeded in reaching the simple agreement described above, leaving no vital matters for further agreement. 

44.  Finally, Mr Thomas advanced a number of reasons for suggesting that it was inherently improbable that the parties had arrived at a concluded contract.  He pointed, for instance, to the sheer informality of the arrangement; the fact that NWD’s lawyers did not appear to have any clear idea of how SHKS’s interest in the project would be taken forward; that appropriate accounting entries had apparently not been made in NWD’s books, and so forth.  In my view, it is simply too late for such submissions.  The Judge, having seen and heard the witnesses, was perfectly entitled to accept the evidence of Henry Cheng and to reject that of Tony Fung.  There was plenty of other evidence, both viva voce and documentary, not least concerning admissions of SHKS’s liability to reimburse NWD, that the Judge was entitled to accept in finding that there was a concluded contract.  No basis has been disclosed for now challenging the Judge’s assessment of the probabilities and the credibility of the witnesses. 

45.  I therefore reject the uncertainty argument.

E. The limited obligation argument

46.  SHKS had of course sought to advance a limited obligation argument at the trial.  It was based on Tony Fung’s evidence that such a limitation, defined by acquisition of a portion of the GUP shares representing the value of the project site, had been expressly agreed with Henry Cheng, as discussed in Section D(ii) above.  Since the Judge rejected that evidence and found against the existence of any “dai chong” limitation on SHKS’s obligation to share in NWD’s contributions to the project, there is a marked implausibility in Mr Thomas’s argument that a finding of such a limitation is nevertheless objectively mandated by the evidence.  Nevertheless, that argument calls for a review of the evidence, particularly regarding the parties’ conduct, to see what inferences it may justify as to the contracted scope of SHKS’s obligations (a review which will also serve to provide the factual basis for discussion of the limitation, quantum and interest arguments, as well as the counterclaim).

E.(i)  The conduct of the parties

E.(i)(a)  From April to July 1990

47.  In the three-month period after signing the Memorandum of Agreement, NWD and IGB finalized the Shareholders Agreement which was dated 20 July 1990.  On 23 July, a copy was faxed to SHKS.

48.  The terms of the Shareholders Agreement had been foreshadowed in the Memorandum of Agreement and require no detailed discussion.  It may be noted for present purposes that the “Newco” of the Memorandum of Agreement was now named as GUP; that one of the principal outstanding conditions was the obtaining of approval from the Foreign Investment Committee of Malaysia (“FIC”) for NWD, a Hong Kong company, to acquire 50% of the shares in GUP; that NWD and IGB were to enter into various agreements for the carrying out the development including technical advisory, project management, hotel management and trademark licensing agreements; and that NWD was to pay a further 10% for its shares, amounting to M$4.25 million on signing, with the balance of M$34 million payable on a date linked to the grant of planning permission. 

49.  Clause 16 of the Shareholders Agreement echoes the clause in the Memorandum of Agreement dealing with shareholder funding.  Having stated that the parties were to use their best endeavours to arrange for project financing for the development of the hotels, it goes on to state:

“16.2    In the event of a shortfall on financing or in the event financing ...... is not available then IGB and NWD shall contribute to the financing by way of shareholders’ loans pro rata to the ratios their combined respective shareholdings in GUP bear to each other ......”

50.  The Shareholders Agreement therefore made it clear (as had the Memorandum of Agreement) that NWD’s obligations – and it follows, SHKS’s proportionate obligations – extended beyond contributions to GUP’s share capital, to include contributions to finance the development to the extent that such finance could not be raised from external sources.

51.  Having seen the formal agreement, on 24 July 1990 SHKS did not hesitate to send its cheque to NWD stating simply that it was “our share of second payment in the amount of M$2,125,000”.  It did not seek to differentiate its funding obligations from those applicable to NWD as set out in the agreement.

E.(i)(b)  August 1990 to July 1991

52.  In the year or so that followed execution of the Shareholders Agreement, the joint venture made steady progress.  FIC approval to NWD’s acquisition of GUP shares was obtained.  An executive committee was set up for the management of GUP which, at its first meeting, agreed to appoint the architect, quantity surveyor and engineering consultants for the project.  Availing itself of a provision in the Shareholders Agreement, NWD nominated the 2^nd plaintiff, Stapleton Developments Limited (“SDL”), a BVI subsidiary, to hold its GUP shares.  By 16 April 1991, NWD’s executive committee was able to note that apart from FIC approval for NWD’s disposal of part of its shares in GUP and apart from obtaining government consents to the hotel management contract and obtaining formal NWD and IGB board and shareholder approvals, the other conditions of the joint venture had been fulfilled.

53.  As to implementation of the oral agreement between NWD and SHKS, the evidence shows that the parties initially intended a transfer by NWD of a proportion of its GUP shares to SHKS who would then hold them directly.  However, there was uncertainty as to the FIC’s attitude to such a step, particularly in the light of SHKS’s intention to on-sell its interest which might then require yet a further application to the FIC.  There were also concerns about the stamp duty and property tax implications of following that course.  Eventually, in the light of the difficulties it was having finding a buyer, SHKS decided that a transfer and an application to the FIC should not, for the moment, be pursued.  John Yip noted on 13 May 1991 that he had agreed with Mr Alex Chow (NWD’s financial controller) and Mr Paul Tong (NWD’s general manager) “that New World would hold a trust for SHK and application will be made to the Malaysian FIC when investors have committed to the project.”  As Henry Cheng testified, the precise manner in which SHKS would hold its interest in the GUP shares was contractually of little concern and easily accommodated by the parties.

54.  Contrary to Mr Thomas’s  submissions, NWD was not excluding SHKS from participation in the management of the joint venture. On 13 November 1990, it nominated Mr Fung Kar Bun, SHKS’s managing director and a member of the SHK board, to GUP’s executive committee, but Mr Fung evidently did not think it necessary to attend its first meeting on 21 November 1990, and SHKS subsequently omitted to nominate an appointee to GUP’s board.

55.  The documents concerning SHKS’s attempts at on-selling its interest are most revealing.  SHKS was approaching potential investors with a view to on-selling to them, not some parcel of shares in a property-owning company which carried no additional payment obligations, but the opportunity to become an active investor in a hotel development. 

56.  Thus, there were discussions in March 1991 involving a Mr Charles Fowler of John Govett Investment Management, who sought information about the estimated project costs with a view to calculating the cost per room and thus estimating the potential returns.  SHKS asked NWD for the information and were told by Alex Chow: “Our estimate of the development cost of the project is about M$586.71M which is inclusive of the Land Cost of M$85M and Finance Charge of M$84M.”  Mr Chow attached detailed estimates of the projected construction costs, professional fees and other expenses totalling M$417.7 million, over and above the land cost and finance charges mentioned in the letter.

57.  The same cost estimates were supplied by SHKS to American International Assurance Co Ltd (“AIA”) to whom SHKS were seeking to on-sell “20% of the project”, keeping 5% for itself.  In a fax to AIA dated 25 April 1991, SHKS gave details of the site and explained that NWD had “sold 25% of the entire project to [SHK]” and that 20% of the land costs had been paid with the balance payable on receiving planning permission.  It adds:

“Construction begins in mid-1992, and is to be completed in 2 years for 2 hotels of 1,000 rooms plus 200 service apartment.  NWD/Ramada will manage the hotels.  Listing of the project in the KL stock market will be done in appropriate time.  The hotel industry in KL is doing very well in spite of the Gulf crisis.  Occupancy is around 80-90% and the prevailing room rate ...... is around M$320-M$330 per day as compared with the M$200-M$220 as projected in the original feasibility study.” 

58.  On 27 July 1991, SHKS made a formal offer “subject to the terms and conditions of the [Memorandum of Agreement] and the [Shareholders Agreement]” to transfer 80% of its interest in GUP shares “or 20% of the entire project” to AIA at a 5% premium over the sums payable by SHKS for its shares (expressed as a price of M$1.05 per share). 

59.  These efforts at on-sale provide the clearest possible evidence of what the parties understood SHKS to have acquired by agreement with NWD and what SHKS was now trying to on-sell to potential investors:  It was a share in an investment, not merely in the acquisition of land, but additionally in the development of two hotels on that land subject to the terms of the Shareholders Agreement.  As the potential buyers plainly recognized, the commercial attractiveness or otherwise of the project would depend on how much the development would cost, expressed in cost per hotel room, and on the returns achievable in terms of hotel room and occupancy rates estimated in the light of market demand in Kuala Lumpur.  It was in relation to such a business venture, as all parties concerned understood, that SHKS had acquired a 25% interest in “the entire project”.

E.(i)(c)  August 1991 to April 1992

60.  The grant of planning permission was imminent and, on 11 March 1992, NWD sent a fax to John Yip alerting him to the fact that NWD would soon be required to pay the M$34 million balance for the GUP shares and that, accordingly, SHKS would be required to contribute M$17 million “latest on 19 April 1992”. 

61.  However, by that stage, as John Yip’s handwritten annotation on the fax shows, SHKS had concluded that it did not wish to “come up with the full 25%” since it was not going to succeed in on-selling any part of its interest in the near future.  Overtures were made to NWD and Henry Cheng testified that in April 1992, he reluctantly agreed that SHKS would be allowed to reduce its participation in the project to 25% of NWD’s interest, equivalent to 12.5% of the entire project. 

62.  There had also been a minor change to the project.  After certain increases to the gross floor area of the development, NWD and IGB had agreed that the valuation of the project site should be increased from M$85 million to M$94.5 million and that GUP’s issued capital should be increased accordingly.  So, taking account of the deposits already paid, the balance payable by NWD had risen to M$38.75 million (from the original M$34 million).  NWD therefore asked SHKS to pay 25% of that amount as the balance for its interest in the GUP shares, giving credit for the proportionately higher deposits SHKS had already paid.  It added that SDL “will be holding the GUP shares as nominee for your company and New World.”

E.(i)(d)  May 1992 to March 1995

63.  Problems in the relationship between NWD and SHKS began to appear in this period.  The project was well underway and GUP needed funds to pay construction costs, professional fees and other expenses associated with developing the hotels.  NWD was making its share of those payments pursuant to its contractual obligations to IGB.  It requested proportionate reimbursement from SHKS, passing on a series of detailed progress reports on the project and vouchers showing the expenses incurred and the payments made.  However, reimbursement was not forthcoming, but without SHKS ever protesting that it was not liable to pay.  If the obligation contracted was limited in the manner contended for by SHKS, it is difficult to imagine why no protest against liability to pay was ever uttered in the face of a stream of vouched demands for payment that plainly went beyond acquisition of the shares in GUP.

64.  Even payment of the balance for the GUP shares was delayed.  The two 10% deposits had instantly been paid, but here, having been billed for the balance in April, it was only under cover of a letter dated 26 June 1992 that SHKS provided a cheque relating to the share price alone (while ignoring outstanding demands for payment of expenses).  The letter added: “We note that [SDL] will be holding the GUP shares as our nominee.”  So SHKS was clearly keen to assert its beneficial ownership of those shares. 

65.  It was decided to increase GUP’s issued capital further from M$94.5 million to M$100 million to make it appear a more prestigious company.  This was done by a rights issue of 5.5 million new M$1 shares.  This was explained to SHKS by NWD by letter dated 1 July 1992, pointing out that “in order to maintain your 12.5% participation in GUP you will have to take up 687,500 shares from the rights issue.”  It contained a demand for payment to cover the cost of those rights issue shares together with a demand for SHKS’s outstanding portion of shareholders' loans and expenses advanced to GUP.  The letter also claimed interest on the unpaid sums at a rate of 5% per annum.

66.  SHKS did not respond and at the end of February 1994, NWD sent SHKS an invoice for outstanding sums totalling HK$26,639,868.58.  John Yip’s handwritten annotation appears on that document, giving instructions for NWD’s figures to be checked.  This was done internally with SHKS arriving at a computation of HK$26,620,596.67, producing a miniscule difference of HK$19,271.91 from NWD’s figures.  It is hard to imagine why SHKS would have conducted such a computation (as opposed to protesting loudly against liability to pay) if there was any substance in the limited obligation argument.

E.(i)(e)  March 1995 to December 1998

67.  NWD became increasingly concerned at having to make payments properly payable by SHKS without receiving either reimbursement or indeed, any reply to its demand letters.  A number of meetings were arranged with SHKS personnel with a view to resolving the difficulty.

68.  One such meeting took place in March 1995 between John Yip and Mr Carson Wai Yu Tsang (NWD’s assistant general manager).  Mr Yip’s file note of 9 March 1995 recording what he had said to Carson Wai is revealing.  He began by reiterating that SHKS had “intended to act as a broker” but, as he put it, “ended up holding the interest” because it was unable to “sell down” to the potential buyers.  Having noted that SHKS’s “effective interest was reduced from 25% to 12.5% as agreed with [NWD]” he added:

“I told him that the principle all along was that (1) SHKS will take 12.5% of the investment project and its risk and (2) NW would provide the necessary funding for SHK in excess of the project loan at the rate of interest to be agreed.”

The File Note continued:

“Spoken to Chairman and told him when talking to Henry Cheng on the project that interest to be charged by New World should be at their cost of fund plus a small margin.”

This was plainly an acknowledgment of SHKS’s liability to pay a 12.5% share of the project’s funding – a liability that they had hoped, but failed, to divest themselves of – and that in default, of SHKS’s acceptance that NWD should advance the relevant sums and be paid interest.

69.  It appears that it was left on this basis for the next year or so.  In the meantime, after a long and ultimately abortive negotiation for finance with Bank Bumiputra Malaysia Bhd, a syndicated loan was arranged through D&C Sakura Merchant Bankers Bhd (“D&CS”). 

70.  In the first half of 1996, large payments towards the joint venture were required.  GUP wrote to NWD on 26 March 1996 warning them that M$37 million would be needed over the next two months, M$17 million of which would be provided by D&CS, and M$20 million by the shareholders. 

71.  NWD again made approaches to SHKS about the outstandings and asked for their relationship to be formalized through a shareholders agreement.  The Judge found that liability was acknowledged by Tony Fung in March 1996.  This was followed up by Carson Wai’s letters of 15 April and 14 May providing a breakdown of the sums owing and asking for settlement.

72.  The Judge found that on 28 May 1996, at a lunch at the Dynasty Club, John Yip had apologised to Carson Wai for non-payment explaining that this was due to SHK being engaged in a re-structuring.  Three days later, it was announced in the press that the Fung family had sold its controlling interest in SHKS to the Allied Group, controlled by Mr Lee Ming Tee.

73.  This led to NWD sending a collection of documents setting out the state of the project and the accrued outstandings to SHKS on 6 June 1996.  These included GUP’s audited accounts for the previous three years, the financing agreements, the last six construction progress reports, and a financial budget for the two hotels for 1996-1997 (which were imminently to commence operation).  These were supplemented by further documents delivered on 11 June 1996 and, as the Judge found, at a lunch hosted by Henry Cheng for Tony Fung together with Lee Ming Tee, the latter acknowledged SHKS’s liability to NWD.

74.  NWD was asked for further documentation and on 30 July 1996, it sent a financial report for the project, a development cost expenditure report, GUP’s estimated balance sheet as at 30 June, an account of source and application of funds, a cashflow projection and a summary of contributions made to 31 July 1996 to SHKS.  The interest rate applied to the unpaid amounts was now stated to be 9.5% but this was “subject to the proposed Shareholders’ Agreement between ourselves”. 

75.  On 23 August 1996, Mr Chung Tse Hien replaced John Yip at SHKS.  This led to yet another round of requests for documentation of the sums owed.  Documents were duly supplied on four different occasions in the course of September, October and November 1996.  Included among them was a copy of SHKS’s letter to NWD dated 16 June 1992 in which SHKS noted that SDL “will be holding the GUP shares as our nominee”.

76.  Then on 9 December 1996, Mr Chung and David Hui (also of SHK) were invited to a meeting of SDL shareholders where NWD provided information as to how the hotels were performing and Carson Wai summarised the history of the parties’ relationship in respect of the joint venture.  SHKS was given an updated summary of contributions made which showed the balance outstanding from SHKS to be HK$97,169,549.53 as at 4 December 1996.

77.  However, no payment was made for almost a year, during which time Mr Arthur Dew was appointed as executive chairman of SHKS.  Yet again, copies of the relevant documentation were requested and, on 12 November 1997, the materials previously supplied by NWD were provided once more, including the breakdown of sums due attached to the letter from Carson Wai dated 15 April 1996.

78.  This elicited a letter from Arthur Dew dated 18 December 1997 (which will require closer consideration in the context of SHKS’s arguments on limitation).  Having indicated his understanding of the position, he stated that he did not accept the 15 April breakdown mentioned above but asked for confirmation that SDL held 12.5% of the GUP shares as SHKS’s nominee “to be deal[t] with in accordance with its instruction”, indicating that he would then have his accountants ascertain any amounts advanced by NWD, following which, an interest rate could be discussed.

79.  Given that SHKS had not paid for the rights issue shares and was apparently disputing the amount due, it is perhaps not surprising that NWD did not respond even though pressed by letters of 3 March 1998 and 7 April 1998 for confirmation in relation to the 12.5% shareholding.  On 21 August 1998, Arthur Dew wrote again, accusing NWD of being in breach of trust and stating: “in view of this continuing breach of trust we now seek immediate recovery of the funds previously paid to you together with interest thereon......”

80.  NWD replied on 3 September 1998 stating that it was SHKS which was in breach, enclosing a schedule itemising the sums owing which, by that stage, was stated to be HK$113,229,147.00.  There being no resolution, NWD and SDL issued a Writ on 25 February 1999 claiming the sum of HK$115,856,846.88.

E.(ii)  The limited obligation argument in the light of the evidence

81.  Mr Thomas sought to draw support from the evidence essentially for the proposition that SHKS were brokers, making it objectively extremely improbable (so he argued) that they would have committed themselves to an open-ended, long-term investment, as opposed to the limited acquisition of what Mr Thomas referred to as “marketable securities” which they could then on-sell to “placees”, earning a broker’s fee or commission on the way.  He invited the Court to interpret the evidence as being consistent with the parties having agreed to such a limited engagement on SHKS’s part.

82.  With respect, that is an argument detached from reality.  The notion that the GUP shares, at the development stage of the joint venture, could be treated (or could have been thought of by SHKS) as “marketable securities” is wholly unreal and at odds with the evidence.  At that stage and until profitability was attained, GUP was a company with no unencumbered assets.  It would have to borrow both from its shareholders and from any available external sources.  To become a shareholder was to become an investor in the project and not the owner of a valuable, let alone marketable, security.  Bank borrowings must be supported by security which, in the present case, evidently included a first legal charge on the land injected into GUP and a debenture over all of GUP’s assets together with an assignment to the lenders of the rights and benefits of the project until repayment.  Even after discharging external debts, GUP would be a company heavily indebted to its shareholders. 

83.  It is true that SHKS appear to have approached participation as brokers and were looking for investors to whom they could “sell down” their obligations.  However, as John Yip told Carson Wai, they failed and “ended up holding the interest”.  The evidence shows without a doubt that neither party considered SHKS to be accepting only a limited obligation.  Having agreed to share in NWD’s obligations, SHKS paid its portion of the initial deposits without hesitation, fully aware of NWD’s obligations under the Memorandum of Agreement and later under the Shareholders Agreement.  It was with that knowledge that it negotiated for a reduction of its share from 50% to 25% of the position NWD had assumed in the joint venture.  SHKS’s on-sale attempts show it seeking to persuade potential buyers to become investors in a hotel joint venture and not merely purchasers of some shares in a property company.  Faced with a constant stream of information on the progress of the project and demands for contributions to the development costs, SHKS never suggested that such contributions went beyond its obligations.  All of this is capped by the fact that the Judge found that repeated admissions of liability were made on behalf of SHKS in circumstances where the officers concerned were fully informed of the basis of such liability.  The limited obligation argument is unsustainable.

F. Conclusion regarding the contract

84.  The courts below were, in my view, perfectly entitled to hold that SHKS and NWD concluded a binding contract along the lines described above.  They did so intending to create mutual legal relations.  The agreement was neither uncertain nor incomplete.  And the contributions required of SHKS share were not limited to its subscription for GUP shares.

G. The limitation argument

85.  Given that SHKS is contractually bound, it seeks to raise the defence of limitation.  It contends that each of NWD’s various claims for reimbursement first accrued as causes of action on the date each demand was made.  It follows, so it submits, that claims for reimbursement in respect of demands made more than six years before issue of the Writ, that is, six years before 25 February 1999, are time-barred.  Four such demands are particularised, spanning the period from 5 May 1992 to 28 September 1992, involving amounts totalling HK$11,082,945. 

86.  In response, NWD relies on SHKS’s letter to NWD signed by Arthur Dew and dated 18 December 1997 (“the Dew letter”) as an operative acknowledgment of SHKS’s liability to pay so that, by virtue s 23(3) of the of Limitation Ordinance (Cap 347), the claims are not time-barred.

G.(i)  The legal principles

87.  Section 23(3) relevantly provides:

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim...... and the person liable or accountable therefor acknowledges the claim......, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment ......”

88.  Section 24 imposes formal requirements for such an acknowledgment: It must be in writing and signed by the person making the acknowledgment (or his agent) and made to the person whose claim is being acknowledged (or that person’s agent).  These formal requirements are met in the present case, the Dew letter having been signed by SHKS’s executive chairman and addressed to NWD.

89.  The question which therefore calls for determination is whether the Dew letter is a sufficient acknowledgment for the purposes of s 23(3), a question on which there is guidance in the case-law. 

90.  First, it is clear that the question is one of construction.  As Lord Goddard CJ put it in Jones v Bellgrove Properties Ltd [1949] 2 KB 700 at 704: 

“Whether a document is or is not an acknowledgment must depend on what the document states......”

It follows that arguments based on the words used in particular reported cases are of little relevance.  In Spencer v Hemmerde [1922] 2 AC 507 at 517, Viscount Cave (while dealing with the pre-1939 position in England, which does not differ for present purposes) suggested that the proper approach was:

“...... to deal with the letters relied upon according to their terms, and without reference to the countless decisions upon the meaning of other documents couched in different terms.”

91.  Secondly, it is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning, as where, for instance, an acknowledgment emerges from reading together two or more letters written by the debtor in response to letters from the creditor: McGuffie v Burleigh (1898) 78 LT 264; and see Spencer v Hemmerde (above, at 516 and 518).

92.  Thirdly, the object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor.  There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.

(a) Thus, in Good v Parry [1963] 2 QB 418 at 423 – 424, Lord Denning MR articulated the principle as follows:

“...... there must be an admission that there is a debt or other liquidated amount outstanding and unpaid. ...... In order to be an acknowledgment, however, the debt must be quantified in figures or, at all events, it must be liquidated in this sense that it is capable of ascertainment by calculation, or by extrinsic evidence, without further agreement of the parties. ...... But if the debt is not quantified and is not ascertainable without further agreement, then there is no acknowledgment sufficient to satisfy the statute. 

No doubt a promise in writing by a debtor to pay whatever sum is found due on taking an account is a good acknowledgment today just as it was before the Act, provided always that the amount is a mere matter of calculation from vouchers, or can be ascertained by extrinsic evidence, and is not dependent on the further agreement of the debtor.”

(b) In Dungate v Dungate [1965] 1 WLR 1477 at 1487, Diplock LJ stated the principle thus:

“There is clear authority that an acknowledgment under this Act need not identify the amount of the debt and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence.”

(c) Jones v Bellgrove Properties Ltd [1949] 2 KB 700, provides a good illustration.  In that case, the document held to constitute an acknowledgment was a company’s balance sheet signed by the company’s accountants and by two directors and communicated at a meeting attended by the plaintiff.  The balance sheet acknowledged debts to “sundry creditors” amounting to £7,638 6s 10d without either identifying the plaintiff as one of the creditors or stating the amount of his debt.  However, he was able to call the accountants to testify that a debt of £1,807 0s 0d was owed to him and was included in the sum stated in the balance sheet.

93.  Finally, even if the document relied on acknowledges a debt, it is not a sufficient acknowledgment for the purposes of the section if it is accompanied by words which nullify or materially qualify that acknowledgment, for instance by confessing and avoiding the debt or asserting a set-off or cross-claim which renders the document in effect a denial of liability: see, eg, Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 at 575.

G.(ii) The document relied on

94.  The Dew letter which is relied on by NWD as an acknowledgment of SHKS’s indebtedness states as follows:

“I refer to our meeting regarding this matter and I advise that I have now pursued [sic] the entire file including the documents forwarded by you.  I have to advise that our position in this matter is as follows:

1) By letter dated 27.4.92, you offered SHK Securities Limited the opportunity to participate in 12.5% of GUP’s share capital being 11,812,500 shares in GUP at M$1 each = M$11,812,500.  You further advised that Stapleton Development Ltd. would hold the GUP shares as nominee for our company and New World.

2) On the 26.6.92, our company accepted this offer and noted that Stapleton would hold the GUP shares as nominee.

3) Our file also indicates that it was also agreed that New World will provide the necessary Malaysian funding for our company in excess of the Project loan at a rate of interest to be agreed.

4) The draft shareholders agreements forwarded by you never reflected the terms of the agreement and accordingly were never accepted by our company.  There has never been an indication that the draft shareholders agreements were acceptable.

5) The breakdown of the money claimed by you in your letter of 15.4.96 is not in accordance with the letter of agreement and we do not accept the suggestion set out in the 2nd paragraph of the letter.

Accordingly, I would appreciate it if you could supply us with confirmation by Stapleton that it holds 12 ½ % of the GUP shares as nominee for Sun Hung Kai Securities Ltd. to be deal [sic] with in accordance with its instruction.  I will then appoint our Accountants to analyse any capital amount in Malaysian Ringgit which might have been advanced by your company on behalf of our company and when this has been ascertained, I will discuss with you an appropriate rate of interest in respect of any such advances together with an overall resolution of the matter.”

95.  Plainly, this is a document which must be understood in the context of a number of connected documents.  In the opening paragraph, Mr Dew himself sets the context, referring to a prior meeting and “the entire file including the documents forwarded by you”.  A description of the types of documents forwarded is set out in Section E.(i)(e) above. 

96.  It is of particular importance to note the contents of NWD’s letter dated 15 April 1996 signed by Carson Wai (“the Wai letter”), which is mentioned in the paragraph numbered 5) in the Dew letter.  The Wai letter states as follows:

“I refer to our earlier discussion concerning the captioned subject and have the pleasure to send you herewith a breakdown of your company’s 25% contributions towards this project.  Please note that such contributions have already been in arrears for some considerable time.  The interest calculation is based on 9.5% per annum and should be adjusted to 4% above prime leading rate for Ringgit in accordance with the intended terms of the draft Shareholders’ Agreement.

Our Mr Henry Cheng has recently discussed this matter with your Mr Tony Fung and your Mr Fung has agreed to proceed with the 25% participation in this project.  Likewise, your company will enter the Shareholders’ Agreement as being drafted and to reimburse us your accrued contributions plus interest.

In this respect, I shall be grateful if you can remit us your accrued contributions plus interest at your earliest convenience and give us your further comments, if any on the draft Shareholders’ Agreement.  A copy of the draft Shareholders’ Agreement is also enclosed herewith for your perusal.”

The “breakdown” is a schedule particularising the amounts paid by NWD for the project, the sums received from SHKS (which were confined to the sums paid for acquisition of the GUP shares), a list of outstanding amounts said to be due from SHKS, amounts of interest charged on such sums and a cumulative statement of the balance due.

G.(iii) Construction of the Dew letter

97.  In the paragraphs numbered 1) and 2), the Dew letter refers to an exchange of letters in terms which are not controversial.  The Dew letter accepts and asserts that SHKS is the beneficial owner of a 12.5% interest in GUP, which is common ground.

98.  Paragraph 3) is of central importance.  It speaks of what was “also agreed”, that is, agreed over and above the acquisition of the GUP shares mentioned in the two preceding paragraphs.  In particular, such further agreement was “that [NWD] will provide the necessary Malaysian funding for our company in excess of the Project loan at a rate of interest to be agreed.”  This is plainly a reference to NWD providing shareholder funding for the Malaysian joint venture for SHKS’s account.  Thus, it speaks of “the necessary Malaysian funding” which can only mean funding of the Malaysian joint venture.  And it refers to such funding being necessary because it is funding which exceeds “the Project loan”, ie, the funding available by way of bank finance, which must mean shareholder funding.  Furthermore, the Dew letter asserts that such excess funding would be provided by NWD “for our company” that is, for SHKS’s account, “at a rate of interest to be agreed”.  This paragraph is therefore an admission (partly explicit) of liability to reimburse NWD for shareholder funding payments made on SHKS’s account (SHKS’s beneficial status as a 12.5% shareholder having been asserted in paragraphs 1) and 2)) for the joint venture, with interest payable on such sums, although no agreement as to the rate of interest had yet been reached. 

99.  Having thus set out his understanding of the agreement between the parties, Mr Dew states in paragraph 4) that SHKS’s view is that the draft shareholder agreements do not properly reflect “the terms of the agreement”, giving this as the explanation for not accepting those drafts.

100.  Paragraph 5) is very important.  Mr Thomas relies on it as negating any acknowledgment for the purposes of s 23(3), stressing in particular the non-acceptance of  “the suggestion” in the 2^nd paragraph of the Wai letter.  However, I am unable to agree with that construction. 

(a) The Dew letter must be read as a whole, and paragraph 5) must be read together with paragraph 3) which, as I have said, contains the important admission that SHKS is liable to repay in so far as NWD has been making necessary payments by way of shareholder funding on account of SHKS.

(b) The first part of the paragraph 5) is a challenge, not to the aforesaid admitted liability, but to the quantum of the amounts set out “in the breakdown of the money claimed”.  This is not surprising since the breakdown contains a claim to interest the rate of which had not yet been agreed, a fact which was accepted by both parties.  Moreover, as the letter makes clear, Mr Dew did not accept the breakdown because he wanted the payments verified by accountants.  None of this affects the admission of basic liability to reimburse made in paragraph 3).

(c) The second part of paragraph 5) rejects “the suggestion set out in the 2^nd paragraph [of the Wai letter]”.  The rejected “suggestion” may consist of one or more of three matters: (i) that SHKS “has agreed to proceed with the 25% participation in this project”; (ii) that SHKS “will enter the Shareholders’ Agreement as being drafted” and/or (iii) that SHKS will “reimburse us your accrued contributions plus interest”.  Again, it appears to me that a rejection of one or all of these suggestions leaves untouched the essential admission contained in paragraph 3).

(d) Thus, it had long been accepted by both parties that SHKS was to participate in 25% of NWD’s interest and so indirectly in 12.5% of the overall project.  Carson Wai was therefore not stating the position with precision when he spoke of a 25% “contributions towards this project”.  He was presumably intending to refer to SHKS’s participation in 25% of NWD’s share in the project.  Accordingly, rejection of this suggestion is simply consistent with what the Dew letter had stated in its paragraphs 1) and 2), reiterating that SHKS’s participation was limited to a 12.5% interest.  It does not impinge on paragraph 3).

(e) Similarly, if “the suggestion” rejected is the suggested acceptance of the draft shareholder agreement, its unacceptability has been explained in paragraph 4), on grounds which do not affect what is said in paragraph 3).

(f) Finally, if the relevant “suggestion” is that SHKS should “reimburse us your accrued contributions plus interest”, this is merely a reiteration of non-acceptance of the quantum in the breakdown but not of SHKS’s general liability to reimburse acknowledged in paragraph 3).

101.  There is support for the foregoing construction of paragraphs 3) and 5) in the closing paragraph of the Dew letter. 

(a) First, it asks for confirmation by SDL that the latter holds 12.5% of the GUP shares as nominee for SHKS, following up on what was said in paragraphs 1) and 2) (although adding the more contentious words: “to be deal[t] with in accordance with [SHKS’s] instruction” – contentious since SHKS had not paid in full for those shares and was regarded by NWD as owing very substantial amounts). 

(b) Next, the closing paragraph refers to a proposed verification exercise by SHKS’s accountants “to analyse any capital amount in Malaysian Ringgit which might have been advanced by your company on behalf of our company”.  It then envisages entering into a discussion of the interest rate and “an overall solution” – “when this has been ascertained” – meaning, when the accountants have done their analysis and ascertained what capital amounts have been advanced “on behalf of” SHKS.

(c) This is highly significant firstly because it reiterates the understanding (and implicit admission of a general liability to reimburse and to pay interest at a rate to be agreed) contained in paragraph 3).  Secondly, this paragraph evidently acknowledges that the true amount of the principal sums outstanding can be ascertained (speaking of “when” not “if” such amounts are ascertained) by the analysis of accountants.  There is no suggestion that any further agreement between the parties is needed.  This is plainly correct since the principle of reimbursement, namely, a liability to reimburse 25% of NWD’s joint venture contributions involves a simple computation once such contributions have been identified by the taking of an account.

G.(iv) Conclusion as to limitation

102.  I am therefore satisfied that, applying the legal principles discussed above, the Dew letter was a sufficient acknowledgment for the purposes of s 23(3) of the Limitation Ordinance.  While it did not accept the amount of the debt identified in NWD’s breakdown, it acknowledged a general indebtedness where the amount of the debt was ascertainable by a verification exercise conducted by accountants, ie, by the taking of an account, without requiring any further agreement of the parties.  On its true construction, it contained no words nullifying or qualifying the general acknowledgment of a liability to reimburse NWD proportionately for the sums advanced for the purposes of the joint venture.  The limitation defence therefore fails.

H. The quantum argument

103.  At the hearing, the quantum argument largely evaporated.  Mr Warren Chan SC, appearing with Ms Amanda Li for NWD, accepted that an examination of the vouched payments produced a discrepancy in respect of the sums payable by SHKS amounting to HK$629,448.15, comprising certain items which were not properly supported by documents and certain adjustments for arithmetical errors.  He informed the Court that NWD would be content for the appeal to be allowed to the extent of there being a reduction in the amount awarded to his client by the aforesaid sum.  Although this was not mentioned, it must follow that some adjustment to eliminate interest charged on that sum would also be required.

104.  Mr Thomas accepted that HK$629,448.15 was the figure produced by the abovementioned exercise.  However, he also submitted, somewhat faintly, that the underlying basis for certain items of claim had never been properly investigated (eg, as whether lawyers fees charged were properly part of the joint venture’s expenses) and that the Court ought to remit the question of quantum to a Master for investigation.

105.  As noted in Section E above, SHKS was provided with a constant stream of documentation particularising payments made and reimbursement claimed which it chose not to query.  Letters from NWD routinely offered to supply any information required.  And, as we have seen, particularly after the Allied Group came on the scene, several rounds of document requests were made and duly complied with.  The Dew letter acknowledges receipt and study of those documents.  In his witness statement dated 29 December 2000, Mr Christopher Lam Sze Hoo (of NWD) verified a schedule of outstandings as at 2 November 2000, and Mr Chan SC informed the Court that the later schedules upon which the Judge based his award, subject to the adjustment of HK$629,448.15, were an accurate summary based on documents produced at the trial.  SHKS has therefore had every opportunity to investigate the basis of the quantum claimed.  Save for the said adjustment, there is no basis for re-opening questions of quantum.

I.  The interest argument

106.  The Judge awarded NWD the principal sum of HK$80,117,652.72 comprising sums outstanding from SHKS in respect of joint venture expenses, the rights issue shares and shareholders loans in the respective sums of HK$590,653.03, HK$2,120,987.50 and HK$77,406,012.19.  Those amounts involve separate liabilities accruing at different times and the Judge assessed interest in the total amount of HK$25,416,365.50 to cover the various periods from each accrual up to 16 December 1998, which was the date when NWD, in a letter before action, demanded payment of a global amount.  This is the segment of interest which is the focus of the interest argument.

107.  The Judge also ordered interest for the period after 16 December 1998 to be paid at the judgment rate.  Since judgment was not delivered until 1 April 2004, SHKS were being charged with interest set at a very high level to deter non-compliance with judgments for over five years before the actual judgment date.  There was no basis for this and the Court of Appeal set this part of the order aside, substituting an order for interest between 17 December 1998 and 1 April 2004 to be paid at the prime rate (and thereafter at the judgment rate).  That slice of interest is not under challenge.

108.  Returning to the first segment of interest, it was not awarded pursuant to contract since, as we have seen, both parties accept that they had never agreed a rate of interest.  It was therefore statutory interest which may be awarded at such rate as the court thinks fit under s 48 of the High Court Ordinance (Cap 4). 

109.  The Judge stated that he was making the statutory award with a view to giving interest which represented “cost of funds to [NWD] plus a small margin”, an approach not disputed in principle by SHKS and, as we have seen, mentioned by the parties inter se.  However, SHKS complains that in fact, the HK$25,416,365.50 was awarded simply by accepting a schedule assembling together the interest charges made by NWD in invoices sent to SHKS during the course of the joint venture.  This, it complains, was arbitrary and contrary to principle.  It is said that the Judge should have taken evidence of the actual cost of funds to NWD and awarded a rate equivalent to HIBOR + 0.5% at most.

110.  In my view, the Judge’s exercise of discretion in respect of interest should not be disturbed (save in the very limited respect dealt with in Section K below).  The material placed before him included schedules showing the rates of interest invoiced by NWD on outstanding amounts due from SHKS.  Against such rates are shown the historic Hong Kong Dollar prime rates.  What emerges is that from 12 April 1990 until the end of March 1996, a period of just under six years, NWD was charging 5% whereas the prime rate was for that period consistently between 8.5% and 11%, never falling below 6.5%.  Then from March 1996 to December 1998, NWD increased its interest charge (with the entry upon the scene of the new Allied Group regime) to 9.5%, during which period the prime rate was fluctuating between 8.5% and 11.25%.  The Judge was, in my view, entitled to adopt a broad brush approach, setting six years of low interest calculations against the more commercial rate used in calculations during the last two years, and treating the overall result as a rough and ready, but reasonable, approximation of interest charged at cost of funds plus a small margin.

111.  Mr Thomas also suggested that a lower rate of interest should be awarded on account of delay in bringing the claim.  SHKS’s senior management were found to have made a series of promises to repay that were not honoured.  They asked for time while the company was re-structured and, after the Allied Group appeared on the scene, NWD was naturally holding its hand while attempting to persuade the new controlling interests of the validity of their claim.  There was, in short, no culpable delay on the part of NWD.  I accordingly reject the interest argument.

J. SHKS’s counterclaim

112.  The pleaded counterclaim alleges that there was a June 1992 agreement between NWD and SHKS whereby the former agreed that SDL would hold SHKS’s 12.5% interest in GUP shares as nominee for SHKS.  That agreement was allegedly breached because requests made by Arthur Dew for confirmation that the shares were held on trust for SHKS to be dealt with in accordance with SHKS’s instruction were not complied with.  The relief sought by such counterclaim was for rescission of the “June agreement”,  for recovery of the sums paid to NWD for the GUP shares and a declaration that SHKS was under no obligation to contribute towards funding the project.

113.  The Judge rejected the counterclaim on the facts and his finding was upheld in the Court of Appeal.  That really was the end of the matter.  Mr Thomas, however, addressed the Court in relation to a claim by SHKS for a declaration against NWD that the relevant GUP shares were held on trust for itself.  But that was not the subject-matter of the pleaded counterclaim which adopted a contrary stance.  It involved SHKS seeking to discard the GUP shares (rather than asserting a beneficial interest therein), to recover the sums paid for those shares and (somehow) to avoid any obligations owed to NWD pursuant to the oral agreement.  One can of course see that where SHKS has made full payment, it is likely to be entitled to consequential orders for the vesting of its interest in the shares.  However, that would be a matter of consequential relief rather than the pleaded counterclaim. 

114.  There is accordingly no basis for reversing the dismissal of the counterclaim by the courts below.  It appears, from what the Court was told at the hearing, that the question has been addressed commercially by the parties in that, following upon SHKS’s payment of the judgment debt (apparently in June 2004), NWD provided an audit confirmation dated 15 July 2004 acknowledging, among other things, that SDL holds 12.5% of the shares in GUP on trust for SHKS.  The Court is not concerned with those exchanges (or the subsequent correspondence) between the parties.  It suffices to note for present purposes that the counterclaim remains dismissed.

K.  Conclusion

115.  Accordingly, save for the adjustment to the quantum of the award mentioned in Section H above, SHKS’s appeal fails on all counts.  I would make the costs order nisi set out below on the footing that such adjustment and the consequential adjustment to the award of interest have no impact on the award of costs.

116.  I would therefore make the following orders, namely:

(a) That SHKS’s appeal be allowed only to the extent that the principal sum awarded in favour of NWD should be reduced by HK$629,448.15. 

(b) With a view to avoiding the necessity for any further hearing, that there be an order nisi that the overall award of interest be reduced by an amount equivalent to interest on the aforesaid sum of HK$629,448.15 calculated (i) at the rate of 5% from 12 April 1990 until 31 March 1996; (ii) then at the rate of 9.5% from 1 April 1996 until 16 December 1998; (iii) then at the Hong Kong Dollar prime rate from 17 December 1998 until 1 April 2004; and (iv) and at the judgment rate from 2 April 2004 until the date of payment of the judgment sum. 

(c) That there be an order nisi that SHKS should pay the costs of the appeal.

(d) That the orders referred to in sub-paragraphs (b) and (c) above should become absolute unless submissions in writing seeking to modify those orders or either of them are filed in Court and served on the other side by either of the parties within 14 days after the date of this Judgment, in which event the side so served should have 14 days after service to file any written submissions in reply.

(e) That there should be liberty to the parties to apply to a single Permanent Judge in writing for any further directions in relation to the implementation of this order.

 

Mr Justice Mortimer NPJ:

117.  I entirely agree with the judgment of Mr Justice Ribeiro PJ and have nothing to add.

Sir Gerard Brennan NPJ:

118.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ :

119.  The appeal is allowed to the limited extent rightly and sensibly conceded by the respondent so as to avoid a remitter.  Accordingly, the principal sum awarded in favour of the respondent is reduced by HK$629,448.15.  As to interest and costs, we make the orders nisi proposed in the concluding paragraph of Mr Justice Ribeiro PJ’s judgment.