SOUTH EAST GROUP LTD. v. NAM FONG INTERNATIONAL FINANCE LTD. AND ANOTHER

HCA10850/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10850 OF 1998

--------------------

-----------------------

J U D G M E N T

-----------------------

1. The plaintiff's claim is for the return of US$5 million which the plaintiff allege to have been deposited with the 1st defendant by the plaintiff and the repayment of which was guaranteed by the 2nd defendant.

2. Both defendants accept that this sum of US$5 million was received by the 1st defendant from the plaintiff and such sum has never been repaid to the plaintiff. However, the defendants dispute that the sum of US$5 million was simply a deposit to the 1st defendant and repayable on demand. Instead, the defendants say that the sum of US$5 million was paid as security deposit on behalf of Spring Whistle Ltd. ("Spring Whistle") pursuant to its obligation to pay consideration under a written agreement dated 2 April 1998 between Spring Whistle and the 2nd defendant ("the formal Agreement") to invest in Nanyang Hotel Ltd ("NHL").

3. As a result of this defence raised by the defendants, the plaintiff has (while disputing factually the defence relied on by the defendants) put forth a secondary case that even if the court should find that the sum of US$5 million was paid as security deposit in the way alleged by the defendants, the plaintiff should be entitled to the return of that money since the formal Agreement has been repudiated by the 2nd defendant's breaches. The defendants' reply to that is that since Spring Whistle is the only proper person to claim the money on the plaintiff's secondary case, and since Spring Whistle is not a party to these proceedings, it would be wrong for the court to determine any dispute between Spring Whistle and the 2nd defendant in these proceedings.

Plaintiff's Primary case

4. I shall deal first with the plaintiff's primary case.

5. The plaintiff called one witness, Madam Cheong Swee Kheng, the chairman of the plaintiff. Her evidence was that on about the 20 March 1998, the 2nd defendant, being a director of the 1st defendant, approached her saying that he required a sum of money urgently and requesting the plaintiff to deposit US$5 million with his finance company, the 1st defendant herein, at the same time offering a favourable rate of interest at 8% per annum for such deposit. The 2nd defendant indicated that he required the money only for the short time of one week and further offered to pledge his shares in NHL in favour of the plaintiff and also to provide a personal guarantee for the repayment of the deposit sum.

6. At that very same time, according to Madam Cheong, she and her husband, Dr Hendra Rahardja, were negotiating with the 2nd defendant a completely separate transaction involving the purchase by them of shares in NHL belonging to the 2nd defendant. When the 2nd defendant requested the plaintiff to make the deposit, she understood the 2nd defendant to be making a totally separate and distinct proposal from their negotiations as to the purchase of shares in NHL.

7. As a result she orally agreed with the 2nd defendant for the plaintiff to make a deposit with the 1st defendant in the sum of US$5 million at 8% interest for an initial period of one week but which was later extended to three months at the request of the 2nd defendant. It was also agreed between them that the deposit sum would be repaid if demanded by the plaintiff before the expiry of the three months period.

8. On the same day that the oral agreement was entered into for the deposit of the US$5 million, i.e. 20 March 1998, the 2nd defendant acknowledged receipt of the deposit sum and guaranteed its repayment by a handwritten note. It was further agreed between them that at a later date a formal guarantee would be entered between them in respect of the guarantee given by the 2nd defendant for the repayment of the US$5 million. A formal guarantee was subsequently entered into by the 2nd defendant in favour of the plaintiff on 2 April 1998 for the deposit amount.

9. She further gave evidence as to how, at the end of May and in June 1998, the plaintiff had made written demands to the 1st defendant for the repayment of the deposit sum and the interests accrued but the 1st defendant had failed to repay any part of that money to the plaintiff. On 23 June the plaintiff's solicitors wrote to the 2nd defendant as the guarantor of the deposit sum demanding from him the return of the deposit and the interests thereon to be paid on or before 30 June 1998 but to no avail.

10. Dealing with the defendant's allegation that the US$5 million was paid by way of a security deposit for the purchase of shares of NHL, Madam Cheong had this to say. She acknowledged that on 2 April 1998, the formal Agreement was entered into between the 2nd defendant and Spring Whistle, a private company owned by her and her husband and used by them as the vehicle to acquire the shares of NHL from the 2nd defendant. Under the formal Agreement, Spring Whistle was to purchase firstly, 50% of all the issued shares of NHL which were held by the 2nd defendant and his wife, one Wong Siu Mui, for US$5,000.00; and secondly, 50% of the indebtedness due from NHL to the 2nd defendant for a further sum of US$5,250,000.00. Under the terms of that agreement, payment of the purchase price of US$5,250,000.00 was to be made within 90 days from 2 April 1998 with an option for deferral for a further nine months.

11. Madam Cheong further said in evidence that upon those terms contained in the formal Agreement, that transaction for the purchase of NHL shares by Spring Whistle did not involve any security deposit to be paid, not by Spring Whistle nor by her nor by the plaintiff.

12. Indeed the plaintiff's case in a nutshell is encapsulated in the following questions and answers of Madam Cheong in cross examination :

"Q: Can you explain how did it come about that on 20th March 1998 Mr. Wong Wah suddenly, if I may use that word, come up with the request that your company, the plaintiff, Benelux, was to give a deposit to him?

A: In early March when he came back from his grand opening, he approached us to say that he - he asked us to share in his casino business. Then through some negotiation and all that, I told him that our public company, Benelux, could invest in it. So there was some discussion. In the end we discovered from the Stock Exchange that Benelux is not allowed to do any casino business. So on the particular day, 20th March, he learned that the public company could not. Then we told him that if our public company cannot do it, our private company can do it, but we do not have the money now; we have to wait until maybe one year later, at the earliest maybe six months or three months, until we sell some assets from our private company. He said that he needed some money to ease his short term cashflow, so I told him that the public company can only deposit money. Then he said that he has this finance company where he can receive deposits. That is how he goes about it.

......

Q. Did you immediately make a deposit to him?

A. He said he can offer higher interest rate, higher interest, and that is why he proposed 8 per cent. He said he needed it only for the short term. But he said that our private company will invest in his casino business? I said yes if we can realise some cash later on, we will do it. That is why our in house lawyer from Singapore made some simple statements for him to sign.

Q. But your case is that the investment by Spring Whistle eventually made on 2nd April was a completely different matter from the deposit of $5 million?

A. Yes."

13. From this evidence of Madam Cheong given in cross-examination, one matter which was not apparent from her witness statement became clear. That is, although the plaintiff says that the deposit of the US$5 million with the 1st defendant was a separate transaction from the negotiations and the subsequent agreement by Spring Whistle to purchase NHL shares of the 2nd defendant, nevertheless, there is a connection between the two transactions in that it was because of Spring Whistle's inability to raise the purchase price at once on 20 March 1998 and the 2nd defendant saying that he needed some money to ease his cashflow which led to Madam Cheong suggesting to make a deposit from the plaintiff. In my view, this is an important piece of evidence which not only gives the reason why the deposit came to be made in the midst of negotiations for the purchase of NHL shares and investment in the casino business but it also explains how certain similarities (which I shall deal with in due course) as to time periods and interests rates came about notwithstanding that the plaintiff says that the two transactions are separate from each other.

14. Turning now to deal with the evidence of the defendants, the only witness called by the defence was the 2nd defendant. He gave evidence that he was the director of the 1st defendant and came to know Madam Cheong and her husband in 1997 through the introduction of a mutual friend. At that time he was himself an investor in casino business through NHL since NHL was managing the casino business in a casino called Casino Filippino-Mactan Waterfront ("the Casino") in the Waterfront Mactan Casino Hotel in Cebu, Philippines.

15. Madam Cheong and her husband had visited the Casino in October or November 1997. After their visit the Casino underwent redecoration and during the celebration of its re-opening in a restaurant in Causeway Bay, Hong Kong, he again met Madam Cheong who showed keen interest in investing in the Casino. Then in February 1998 Madam Cheong approached him which resulted in their further meeting and negotiations concerning Madam Cheong's investing in the Casino. He told her during such negotiations that his investment in the Casino was about US$10 million and indicated that if Madam Cheong was interested she could purchase half of his interests in the Casino for US$5 million. Madam Cheong indicated that as she was the chairman of a public company, the plaintiff, she intended to make the investment using the plaintiff. He agreed to such proposal and Madam Cheong informed him that she would appoint Messrs Richards Butler as solicitors to prepare a draft agreement for signing on or before 18 March 1998. Such a draft was prepared and a copy sent to him but before it was executed, he was told by Madam Cheong that the Stock Exchange of Hong Kong may not approve such an investment in casino business by a publicly listed company.

16. Madam Cheong indicated to him that if there was any difficulty using the public company for this investment she would use a private company to do so giving the name of Spring Whistle as the name of her private company to be so used. Madam Cheong also told him that private funds would not be available until June 1998 but she will commit her investment in the casino business by paying the sum of US$5 million as a security deposit using funds of the plaintiff to do so.

17. According to the 2nd defendant, Madam Cheong attended his office at Times Square on 19 and 20 March 1998 to discuss about the investment in the casino business and it was there that Madam Cheong agreed to pay the security deposit of US$5 million and it was Madam Cheong who suggested that this amount was to be paid to the 1st defendant company by the plaintiff by bank transfer on or before 21 March as she intended to visit the Casino as an investor on 21 March. Madam Cheong further indicated that a formal agreement will be signed by them when she returned from the Philippines.

18. It was further agreed between them that if Madam Cheong defaulted in entering into the formal agreement she would pay a sum of US$2,500,000 as liquidated damages which can be deducted from the sum of the security deposit. Moreover, it was agreed that pending the signing of the formal agreement, interests at the rate of 8% per annum was payable on the amount of the security deposit by the 2nd defendant. In return, Madam Cheong was also to pay interest at the same rate on the amount due to the 2nd defendant if she delayed in paying the consideration to the 2nd defendant.

19. On 20 March 1998, Madam Cheong accompanied by several persons attended his office where they signed a written Memorandum setting out the agreement between them concerning her investment in the Casino. Madam Cheong told him that she would be leaving for the Philippines the following day and that one of her staff will take care of the arrangements for the payment of the US$5 million by bank transfer the next day. Madam Cheong then requested for a receipt for the sum of US$5 million ("the First Receipt") and that request was complied with by him. At the same time, Madam Cheong requested him to sign an Instrument of Transfer and a Sold Note in blank relating to the transfer of 5,000 of his shares in NHL on the basis that she had committed to paying the said US$5 million and she was worried that he was not going to transfer the 5,000 shares to her. This was agreed to by the 2nd defendant and the Instrument of Transfer as well as the Sold Note was signed in blank by him.

20. The US$5 million was transferred to the 1st defendant by bank transfer on 21 March 1998. After the transfer was made and Madam Cheong had signed the Memorandum, she was, since 21 March, allowed privileges in the Casino including the right to permit credit to customers of the casino and to herself. These privileges also extended to Madam Kwok Yeok Kwan the assistant of Madam Cheong, at Madam Cheong's nomination. Both Madam Cheong and Kwok Yeok Kwan were made directors of NHL by resolution dated 2 April 1998. All this came about because of the payment of the US$5 million from the plaintiff.

21. When Madam Cheong and her husband returned from the Philippines several days after 21 March, Madam Cheong requested another receipt from the 1st defendant in respect of the US$5 million stating also one week's interest at the agreed rate of 8 %. This request was complied with and although that was done several days after 20 March, the receipt nevertheless bore the same date as the earlier one, namely, 20 March1998 ("the Second Receipt").

22. Some time after Madam Cheong's return to Hong Kong, the 2nd defendant was informed by her that the Stock Exchange of Hong Kong would not approve the plaintiff investing in the casino business therefore that investment was to be made in the name of Spring Whistle who was to purchase 50% of the 2nd defendant's shares in NHL for US$5,000.00 as well as 50% of the indebtedness due from NHL to the 2nd defendant for a further sum of US$5,250,000.00. It was also agreed between them that a formal agreement for sale and purchase of the shares (replacing the earlier draft agreement involving the plaintiff) was to be entered into by them at a solicitor's office in which Spring Whistle would replace the plaintiff as the purchaser.

23. Some days after the Second Receipt was signed, Madam Cheong came to see the 2nd defendant with a female being her solicitor from Singapore. They produced a copy of that Second Receipt on which a passage was written by the female solicitor from Singapore and requested him to sign against that written passage ("the Third Receipt"). The writing was made by blue ball pen. Later, on 2 April 1998, when yet another receipt ("the Fourth Receipt") was made out in respect of the deposit of the US$5 million, the Third Receipt was returned to the 2nd defendant and has been kept by him since.

24. The Fourth Receipt refers to the deposit of the same US$5 million but for a period of three months. The period of three months came about because Clause 3(B) of the formal Agreement by which Spring Whistle purchased the shares of NHL and its indebtedness to the 2nd defendant provided that the consideration of US$5.25 million was to be payable in one lump sum within 90 days from 2 April 1998. It was also pointed out by the 2nd defendant that the Fourth Receipt did not contain any word of guarantee and that although it also bore the date of 20 March 1998, it was in fact signed on 2 April 1998 and given to Madam Cheong on that day.

25. The 2nd defendant further gave evidence that after the formal Agreement for the sale and purchase of the NHL shares were signed, some time between the 3 and 6 April 1998 Madam Cheong approached him and urged him to accommodate her by signing an already prepared written guarantee in favour of the plaintiff in respect of the US$5 million. Madam Cheong told him that this guarantee was required as a matter of formality as the plaintiff was a publicly listed company. She also assured him that she will not use the guarantee to demand payment from him or from the 1st defendant and will not go back on her word that the US$5 million was paid to the 1st defendant as a security deposit for the due performance of her obligation to pay for her investment in the casino business. Madam Cheong further re-assured him that the US$5 million need not be "returned" before she had fully paid for her investment in NHL nor would she request him to "repay" that amount of money. It was upon such reassurance from Madam Cheong that he agreed to sign the guarantee. That guarantee was not signed on 2 April as was suggested by the date on it and was signed purely to accommodate Madam Cheong.

26. Because of the agreement, representations and assurances made by Madam Cheong, the liability of the 1st defendant to repay the US$5 million as well as the 2nd defendant's liability under the guarantee are disputed.

27. The 2nd defendant further said in evidence that Spring Whistle was supposed to pay the consideration of US$5.25 million before the expiration of three months (90 days) from 2 April 1998 under the formal Agreement. By letter dated 24 June 1998, Madam Cheong notified him that she intended to defer payment of that consideration for a further nine months as provided for under Clause 3(B) of the formal Agreement. Notwithstanding that proposed deferment, Madam Cheong, by letter of 23 June 1998 demanded "repayment" of the US$5 million which has been paid as a security deposit and which represents Madam Cheong's investment in the casino business.

28. Based on the above evidence, the 2nd defendant says that before he is paid the consideration of US$5.25 million, neither he nor the 1st defendant are under any obligation to repay the US$5 million. Up to the present, despite the deferment of the further nine months, no part of the US$5.25 million has been received by him.

Documentary Evidence

29. A number of documents contained in no less than three box files were put into evidence before me. Undoubtedly many of these documents relate to the secondary case of the plaintiff. However, in so far as the primary case of the plaintiff was concerned, all the documents referred to in the evidence of Madam Cheong and the 2nd defendant were in evidence before me and these documents provided a platform from which I could assess the evidence given by them.

30. I should also mention that during the trial I was asked to rule on the admissibility of the contents of the passport of one Tan Mei Mei, an in-house legal adviser of Madam Cheong and the person referred to in the evidence of the 2nd defendant as the female solicitor of Madam Cheong from Singapore, as well as a witness statement of Madam Cheong's husband. Both the passport and the witness statement were the subject of a Hearsay Notice given by the plaintiff to the defendants in which it was stated by the plaintiff that these two witnesses should not be called on the grounds that they were beyond the seas. Despite that, the defendants saw fit to issue a counternotice. Even at the trial the defendants still objected to the plaintiff's Hearsay Notice but without disputing the fact that these two witnesses were beyond the seas.

31. Accordingly I had ruled that both the passport and the witness statement to be admissible in evidence under the Hearsay Notice. The relevant part of the passport of Tan Mei Mei shows that she arrived in Hong Kong on 20 March 1998 and left Hong Kong on the same day and likewise also arrived in Hong Kong on 2 April 1998 and left the same day. Nothing in the passport shows that she had used that passport to enter Hong Kong again in between those two dates or for the rest of April 1998.

32. The witness statement of Madam Cheong's husband merely confirms the evidence given by Madam Cheong without adding anything further. I therefore do not propose to go into it in any detail.

Assessment of the evidence

33. The primary difference between the evidence of Madam Cheong and that of the 2nd defendant is whether the US$5 million was paid simply as a deposit with the 1st defendant and therefore subject to repayment to the plaintiff on demand (alternatively after the expiration of three months) or whether it was a security deposit to ensure compliance by Spring Whistle of its obligations under the formal Agreement. Since the negotiations and subsequent agreement arrived at between Madam Cheong and the 2nd defendant for the sale and purchase of the NHL shares were reduced into writing, initially by the Memorandum on 20 March and later by the formal Agreement, it is by looking at these documents that the solution to that question can be found.

34. I start off by noting that there is no dispute to the fact that initially the plaintiff was supposed to be the purchaser of the NHL shares from the 2nd defendant and indeed a draft agreement to that effect had been prepared by Messrs Richards Butler, the solicitors instructed by Madam Cheong for that purpose. That draft agreement however was never executed by the parties since by the 20 March, if not earlier, Madam Cheong had already got wind of the fact that the Stock Exchange of Hong Kong may not approve of a publicly listed company investing in a casino business.

35. No doubt that this was the main reason why the Memorandum was entered into between Madam Cheong and the 2nd defendant on 20 March 1998, because it was still not certain then that the Stock Exchange would give such approval and the Memorandum served to reflect their agreement that if approval was not forthcoming from the Stock Exchange, Madam Cheong would use her own private company to invest in the casino business in place of the plaintiff. In so far as the Memorandum is concerned I note that there is absolutely no mention of any payment of any security deposit whether of US$5 million or any other sum to ensure the carrying out of the agreement by Madam Cheong to purchase the NHL shares of the 2nd defendant. More importantly, I further note that although the Memorandum makes provision for liquidated damages of US$2.5 million to be paid by either party defaulting, there is no mention in the Memorandum that this amount of liquidated damages is to be deducted from the US$5 million security deposit (since there is no mention of such security deposit in the Memorandum). This therefore does not support the evidence of the 2nd defendant given in this respect. I take the view that if there was an oral agreement between Madam Cheong and the 2nd defendant on 20 March 1998 for the US$5 million to be paid as a security deposit to ensure Madam Cheong's performance of her obligation to purchase the NHL shares, and that the US$2.5 million liquidated damages would be deducted from the security deposit, those would be matters which would have been reflected in the Memorandum as being part of the agreement between them in relation to the purchase of the NHL shares.

36. Not only was there no mention of the payment of the US$5 million in the Memorandum as a security deposit, the acknowledgement of the receipt of that sum of money was not even contained in the Memorandum itself, but that a separate document with Chinese wording was used to acknowledge the receipt by the 1st defendant of the US$5 million from the plaintiff. Here I note also that the two parties signing the Memorandum are quite different from the two parties paying and acknowledging receipt of the US$5 million. If as was alleged by the 2nd defendant that the US$5 million was paid as a security deposit for the purchase of the NHL shares, then that money must have been paid by the plaintiff on behalf of either Madam Cheong or Spring Whistle being the purchaser of those shares. It must also be the case that that money could only have been received by the 1st defendant on behalf of the 2nd defendant being the seller of the NHL shares. Yet this was not reflected in any of the receipts all of which acknowledged receipt of the money not by the 2nd defendant, but by the 1st defendant, and not from Madam Cheong or Spring Whistle but from the plaintiff.

37. I further note that on none of the various receipts relating to the US$5 million do there appear any writing to indicate that such sum was received as a security deposit nor anything to connect it with the purchase of the NHL shares but rather the amount received was described simply as a "deposit".

38. However, the greatest indication there is to show that the US$5 million was not a security deposit for the purchase of the NHL shares is the complete silence as to that US$5 million in the formal Agreement entered into between Spring Whistle and the 2nd defendant on 2 April 1998. By its terms the formal Agreement provided for (inter alia) the following matters :

(a) that completion was to take place immediately following the signing of that formal Agreement; and

(b) that the consideration of US$5.25 million thereunder was to be paid three months after completion with a further right given to Spring Whistle to defer payment of same for a further nine months.

39. In the light of such terms as to payment as well as the evidence of the 2nd defendant, it is most unlikely that if the US$5 million was paid as a security deposit for the investment in NHL and from which the parties agreed that the US$2.5 million liquidated damages would be deducted, there is total silence in the formal Agreement as to how the security deposit can or may be utilized in the event that the deferred consideration is not paid by Spring Whistle either at the end of the three months or the further nine months period; or even whether the security deposit should be treated as part of the consideration at all. The fact that there is absolutely no mention in whatever form of the US$5 million alleged to be a security deposit in the formal Agreement is, in my view, a very strong piece of evidence pointing in the direction that the US$5 million has no direct connection and is not part of the agreement for Spring Whistle's investment in NHL.

40. Turning now to deal with the issue of the guarantee which the plaintiff says was given by the 2nd defendant, guaranteeing the repayment of the US$5 million deposited by the plaintiff with the 1st defendant. The plaintiff's case was that the 2nd defendant had agreed to guarantee the repayment of this sum of money on 20 March 1998 and that agreement was put into writing in one handwritten passage in English at the bottom of the Second Receipt underneath the chop of the 1st defendant. That written passage of guarantee was signed by the 2nd defendant.

41. That the 2nd defendant had signed a handwritten guarantee contained at the bottom of the Second Receipt was not disputed by the 2nd defendant. The 2nd defendant's case was that this handwritten guarantee was not signed by him on 20 March but some days after that date when Madam Cheong returned from the Philippines and therefore was several days after the deposit of the US$5 million had been made so that there was no consideration given for that guarantee. The 2nd defendant further says that was the case despite the fact that the receipt bore the date of 20 March 1998.

42. This issue is somewhat complicated by the fact that at the trial, no less than four receipts, each with some slight differences, but all relating to the deposit of US$5 million by the plaintiff with the 1st defendant were produced. All the four receipts were dated 20 March 1998 and were on the 1st defendant's letterhead. The words acknowledging receipt of that deposit were printed in Chinese and they all bore the chop of the 1st defendant. The four receipts however, differed in the following ways :

(a) The First Receipt merely acknowledged the deposit of the US$5 million with no reference to any time period or any rate of interest and was not signed by the 2nd defendant;

(b) The Second Receipt acknowledged the said deposit, referred to a one week period and interests at 8 % per annum, and had the signature of the 2nd defendant next to the chop of the 1st defendant;

(c) The Third Receipt appeared to be a copy of the Second Receipt but without the 2nd defendant's signature next to the chop; instead it had four lines of handwritten words in English at the bottom of the document by which the 2nd defendant personally guaranteed the repayment of the deposit in the event that the 1st defendant was unable to repay same and below those words of guarantee in English appears the signature of the 2nd defendant; and

(d) The Fourth Receipt is the same in all respects as the Second Receipt except that instead of referring to a one week period it refers to a three months period.

43. During the cross-examination of Madam Cheong, it became clear that the plaintiff's case on these various receipts was that she had never seen or been given the First Receipt. The Second Receipt and the Third Receipt were given to her at the same time during the meeting on the 20 March 1998 in the office of the 2nd defendant. According to Madam Cheong, the Second Receipt was given as a receipt, what she called a "pure receipt", and the Third Receipt was given to evidence the 2nd defendant's guarantee for the repayment of the deposit. About one week after the 20 March, when the 2nd defendant requested the deposit of the US$5 million to be extended for three months, and she had agreed to such extension, the Second Receipt was returned to the 2nd defendant by one of her staff in exchange for the Fourth Receipt. Finally, the Third Receipt was returned to the 2nd defendant on 2 April 1998 in exchange for the 2nd defendant executing a formal guarantee in favour of the plaintiff.

44. The defence case on these four documents is quite different factually. The 2nd defendant's evidence in relation to them are as follows. Initially he said that the First Receipt was given to Madam Cheong at the meeting on 20 March. However, under cross examination he changed to say that the First Receipt was not given directly to Madam Cheong but was given to one of her staff on 21 March after payment was effected through the bank for by then Madam Cheong had left Hong Kong for the Philippines. Several days later, after Madam Cheong returned from the Philippines, Madam Cheong requested another receipt to acknowledge not just the deposit but also the one week period and the 8% interests. As a result, the Second Receipt was issued by the 1st defendant to the plaintiff and the First Receipt returned to him. About one week after the 20 March Madam Cheong together with a female solicitor from Singapore had approached him bringing with them a copy of the Second Receipt, and in front of him, the female solicitor had written the English words on that copy and he was asked by Madam Cheong to co-operate with her and to sign his name against those words. That became the Third Receipt. In cross-examination the 2nd defendant said that the Third Receipt was then given by him and in exchange he got back the Second Receipt. That took place before 2 April. Later, after 2 April, the Fourth Receipt together with the formal guarantee was given to Madam Cheong and in exchange for those two documents Madam Cheong returned to him the Third Receipt.

45. Testing the two versions put forward by the plaintiff and by the defence against the documents and also the other evidence adduced in this case, I have the following observations to make. Firstly, I do not accept the evidence of the 2nd defendant that about a week after the 20 March 1998, Madam Cheong and her female solicitor from Singapore approached him with a copy of the Second Receipt and on which the solicitor from Singapore wrote down the English words for him to sign which ultimately became the Third Receipt. There are two reasons for my not accepting this evidence. The first reason is that the Third Receipt could not have been a copy of the Second Receipt which was given to Madam Cheong in the way described by the 2nd defendant because the Third Receipt does not have the 2nd defendant's signature next to the chop of the 1st defendant when such a signature appears on the Second Receipt.

46. The second reason for my rejecting this evidence is that the evidence before me, in particular the Hearsay Notice relating to the passport of Tan Mei Mei, shows that Tan Mei Mei was in Hong Kong on 20 March and 2 April 1998, entering and leaving Hong Kong the same day respectively for those two days. No other evidence shows that she was in Hong Kong at any other time between those two dates nor is it disputed by the defendants that the female solicitor from Singapore who had accompanied Madam Cheong at the meeting with the 2nd defendant in his office was the said Tan Mei Mei. It is true that that evidence alone does not preclude Tan Mei Mei from having entered Hong Kong with other travel documents which point was made by the 2nd defendant in cross-examination. However if the defence alleges that Tan Mei Mei was in Hong Kong on some days between 20 March and 2 April, then it is incumbent upon them to adduce some evidence to that effect but no such evidence was adduced. On balance therefore, it seems unlikely that the Third Receipt came about in the way that the 2nd defendant said it did.

47. On the other hand, I prefer the evidence of Madam Cheong on this point. It seems more likely that at the office of the 2nd defendant, two copies of the Second Receipt (as yet unsigned by the 2nd defendant) were made. One of those copies was then signed by the 2nd defendant as a receipt for the deposit. Therefore that signature of the 2nd defendant was made against the chop of the 1st defendant. That became the Second Receipt. The other copy was then used to record down in writing in English the guarantee orally agreed to by the 2nd defendant. On that copy, the 2nd defendant signed against the words of guarantee. Therefore it did not have his signature against the 1st defendant's chop but instead his signature appears beneath the words of guarantee in English. That became the Third Receipt. Both documents were then given by him to Madam Cheong, each for a different purpose. This scenario fits completely with what now appears on these documents.

48. Furthermore, having heard all the evidence in this case, I have come away with the impression that the 2nd defendant was on a number of occasions extremely evasive when under cross-examination, in particular when he was aware that cross examining counsel was approaching a subject which he would have difficulty explaining on the basis of the evidence which he had given. Some examples of this was when he was cross-examined about the actual business of the 1st defendant, whether the 1st defendant was a member of the publicly listed Nam Fong group of companies under the umbrella of Nam Fong International Holdings Ltd., the use to which the 1st defendant had put the US$5 million deposited with it by the plaintiff, the reason why that money was deposited with the 1st defendant, as well as how these various receipts with their slight differences came about.

49. On the other hand, I found that Madam Cheong gave her evidence in a straightforward manner answering her questions directly as best she could and without the least being evasive in her answers. Her evidence was supported by the documentary evidence and there was no conflict between her evidence and the documents produced in evidence, albeit that there were times when she could not remember certain minor details such as the rate of interest agreed to be payable by Spring Whistle under the formal Agreement upon Spring Whistle deferring payment of the sale price.

Finding of Facts

50. From all the evidence, I have no hesitation in finding that the deposit of the US$5 million by the plaintiff with the 1st defendant was a wholly separate transaction from the sale and purchase of NHL shares belonging to the 2nd defendant and was not a security deposit to ensure performance in the purchase of the NHL shares and investment in NHL. I accept the evidence of Madam Cheong that the matters happened in the way she had described.

51. I further find that the 2nd defendant had on 20 March 1998 personally guaranteed the repayment of such deposit and that had been reduced into writing on the Third Receipt and signed by the 2nd defendant on the same day. Later, on 2 April 1998 when a formal guarantee was prepared, the 2nd defendant had executed that formal guarantee in favour of the plaintiff for the same deposit amount. From this finding, it follows that there was consideration for the guarantee given by the 2nd defendant. That consideration was the agreement of the plaintiff to make the deposit of US$5 million with the 1st defendant.

52. The plaintiff had demanded repayment of the deposit amount together with interest from the 1st defendant at the end of the three months period, at any rate on 20 June 1998 by letter of the same date. When the 1st defendant failed to repay to the plaintiff the amount of the deposit and interest, a further demand was made by letter dated 23 June 1998 to the 2nd defendant as guarantor. Such demands were not met by either the 1st or 2nd defendants.

Decision

53. On the facts as found, I am able to deal with the plaintiff's claim on the primary case of the plaintiff without the need to deal with the plaintiff's secondary case which only arise if I found in favour of the defendants on the facts of the plaintiff's primary case. I have therefore not touched on any of the evidence relating to the plaintiff's secondary case although that evidence had been adduced in evidence at the trial.

54. I should also add that any dispute between the 2nd defendant and Spring Whistle could not have been litigated or determined by me in these proceedings since Spring Whistle was not a party herein.

55. There will accordingly be judgment in favour of the plaintiff against both defendants for US$5 million with interests at 8% per annum from 21st March 1998 until judgment date and thereafter at judgment rate until payment.

Costs

56. There will be a costs order nisi that both defendants do pay the plaintiff its costs of this action to be taxed if not agreed.