MOORJANI ARJAN RAMKRISHANDAS v. PATEL'S WALL STREET EXCHANGE LTD.

CACV 80/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 80 OF 2000

(ON APPEAL FROM HCA NO. 822 OF 1998)

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J U D G M E N T

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Keith JA (giving the first judgment at the invitation of Godfrey V-P):

Introduction

1. The action to which this appeal relates was tried by Deputy Judge Longley in the Court of First Instance. The principal issue in the case was a question of fact: what were the terms of the agreement between the Plaintiff and the Defendant in December 1994 on which the Plaintiff was suing? On that issue, the judge preferred the evidence of the Plaintiff to that of the Defendant's witnesses. He gave judgment for the Plaintiff. It is from that judgment that the Defendant now appeals.

The parties' respective cases

2. The background. The Plaintiff had been the tenant of a flat in Nathan Road for many years. The owner of the flat was prepared to sell it to the Plaintiff at a price which reflected the fact that the Plaintiff was a sitting tenant, and therefore at a price significantly lower than the market price would have been if the flat had been sold with vacant possession. The Plaintiff was unable to obtain a loan to finance his purchase of the flat, and he turned to the Defendant for help. The Defendant's business was currency exchange, and the Plaintiff had regularly used the Defendant to discount foreign currency cheques. The Chairman of the Defendant, Mr A. S. Patel, was a personal friend of the Defendant, although by the time of the events which gave rise to the action Mr Patel was spending most of his time in Bombay. Accordingly, the person to whom the Plaintiff turned for finance when he wanted to purchase the flat was the Defendant's most senior employee in Hong Kong, Mr Mohamed Ameen. Broadly speaking, all of that was common ground.

3. The Plaintiff's version of the agreement. The Plaintiff's case was that when he approached Mr Ameen for a loan, Mr Ameen had insisted that the flat should be purchased in the name of the Defendant, but that the flat should then be decorated and resold with vacant possession. The Plaintiff was prepared to go along with that suggestion since on what he says was agreed he would still be able to share in the profit realised on the resale of the flat. His version of the agreement was that once the flat had been resold the net proceeds of resale (i.e. the difference between the purchase price and the resale price) would be paid to him less

(i) the cost of decorating the flat,

(ii) the expenses of purchasing and reselling the flat,

(iii) interest on the sum of $2.6m. (which was the sum for which the Defendant would be purchasing the flat) at the rate of 1% per month from the date of purchase,

(iv) a sum of $100,000.00 which was to be paid to Mr Ameen, and

(v) a sum of $200,000.00 which was to be paid to Mr Patel.

For his part, the Plaintiff had to do what he could to procure the sale of the flat to the Defendant, and then to surrender his tenancy to the Defendant so that the flat could be resold with vacant possession.

4. The Defendant's version of the agreement. Mr Ameen's initial response to the Plaintiff's request for a loan to enable him to purchase the flat was to refuse it: making loans was not part of the Defendant's business. The Plaintiff later came back with a different proposal. This time, he suggested that the Defendant should purchase the flat itself. With vacant possession, it would be worth more than the $2.6m. which the owner of the flat was prepared to sell it to the Plaintiff for on the footing that he was a sitting tenant. The Plaintiff said that the profit (by which Mr Ameen took him to mean, I assume, the increased value of the flat once the Defendant had moved out) could be used to off-set the Plaintiff's debt to the Defendant. At that time, the Plaintiff owed the Defendant a substantial sum in respect of discounted cheques which the Defendant had purchased from the Plaintiff but which had been dishonoured on presentation and had been returned unpaid.

5. Mr Ameen agreed to this proposal. There was no question, he says, of the Plaintiff being paid anything out of the proceeds of the resale of the flat or of any commission being paid to him and Mr Patel. Indeed, it may have been that the flat would not have been resold at all. It may have been that the flat would be used as quarters for the Defendant's staff. The effect of the agreement was that the Plaintiff's debt to the Defendant would be extinguished, because the difference between the value of the flat with a sitting tenant and its value with vacant possession was greater than the Plaintiff's debt to the Defendant. Again, the Plaintiff would have to do what he could to procure the sale of the flat to the Defendant, and to surrender his tenancy to the Defendant.

6. The relevant documents. A number of documents which came into existence were equally consistent with both the Plaintiff's and the Defendant's cases. After all, since it was common ground that they had agreed that the Defendant would be buying the flat, it is not surprising that the owner of the flat and the Defendant signed a provisional agreement for the sale and purchase of the flat dated 10 January 1995 for $2.6m. Again, since it was common ground that it had been agreed that the Plaintiff would be surrendering his tenancy of the flat to the Defendant, it is not surprising that

(a) a letter dated 15 December 1994 (which was the date of the agreement between the Plaintiff and the Defendant, whatever the terms of that agreement were), the Plaintiff purported to surrender his tenancy to the Defendant, and

(b) by a formal agreement dated 10 January 1995, the Plaintiff agreed to surrender the tenancy to the Defendant on 14 March 1995 (which was the date on which the sale of the flat to the Defendant was to be completed).

I shall have to return later to some of the other documents which are said to have come into existence at the time.

7. The Plaintiff's claim. It is common ground that no sums were ever paid by the Defendant to the Plaintiff. The Plaintiff claimed that that amounted to a breach of his agreement with the Defendant. What the Defendant should have done under the agreement was to resell the flat, and pay to him the profit which was realised on the resale, less the sums which had been agreed should be deducted. The damages which the Plaintiff claimed had to be assessed on what the Defendant would have resold the flat for if it had complied with its contractual obligation to resell the flat.

8. The Defendant's defence. The Defendant's principal defence was that having regard to the true terms of the agreement it had not been under any obligation to resell the flat, and that even if it had resold the flat it had not been obliged to pay any of the profit on its resale to the Plaintiff. It took two other points (apart from disputing the Plaintiff's quantification of his loss). On the assumption, contrary to its primary case, that Mr Ameen had come to an agreement with the Plaintiff in the terms alleged by the Plaintiff:

(i) it was contended that Mr Ameen had not had the Defendant's authority to contract with the Plaintiff in those terms; and

(ii) it was contended that the Plaintiff's version of the agreement rendered the agreement unenforceable because the agreement provided for the payment of secret commissions to Mr. Ameen and Mr Patel.

The judge's findings of fact

9. The judge found as a fact that the agreement between the parties had been in the terms alleged by the Plaintiff. He expressed himself as having had "no hesitation in preferring the evidence of the Plaintiff", and therefore preferring his version of the agreement to that of Mr Ameen. It is that finding of fact which is challenged on this appeal. Mr Andrew Allman-Brown for the Defendant acknowledged the heavy burden placed upon him, and in this connection there is a useful summary by the Court of Appeal in the Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marden and Co. Ltd [1998] 3 HKC 153 at pp. 162D-163A ("the ADS case") of the guidance given by the authorities as to the approach which an appellate court should adopt when faced with such a challenge.

10. The alleged improbabilities about the Plaintiff's version of the agreement. An important attack on the judge's finding is that the judge paid too much attention to where the truth lay on peripheral matters, and by doing so he lost sight of the big picture. Had he concentrated on the big picture, he would have realised that the Plaintiff's version of the agreement was completely implausible, and that the Defendant's version of the agreement had the real ring of truth about it. Broadly speaking, the point is that even though the Plaintiff had denied in the pleadings being indebted to the Defendant at the time of agreement in December 1994, his running account with the Defendant showed that he owed the Defendant at that time about $800,000.00. Thus, the effect of the Plaintiff's version of the agreement was that apart from recovering the cost of financing the purchase of the flat (which was assessed at 1% of the purchase price per month until the flat was resold), the Defendant gained nothing from the agreement and would still be left with the Plaintiff's unpaid debt. As between the Plaintiff and the Defendant, the sole beneficiary of the agreement would be the Plaintiff because he would be able to convert into cash, with the Defendant's help, his valuable status as a sitting tenant, without at the same time assuming any obligation to repay the substantial debt which he owed to the Defendant.

11. This argument cannot be taken too far. It may be that the Defendant would not have gained much from the agreement, but that does not make it unlikely that Mr Ameen agreed to the terms alleged by the Plaintiff. After all, he and Mr Patel were going to profit from the agreement, and their share in the profit to be realised on the resale could have been a powerful reason for Mr Ameen to agree to the terms alleged by the Plaintiff. Putting it in another way, this argument does not undermine the judge's finding as to what was agreed, though it may have had an impact on the arguments about the authority of Mr Ameen and the enforceability of the agreement.

12. One of the reasons why the judge rejected the link between the agreement and the Plaintiff's debt to the Defendant was the judge's finding that

".... there was no reason to suppose the cheques which [the Plaintiff] had presented for discounting before 15 December 1994 would not be honoured and cover his indebtedness."

If there was good reason for thinking that the Plaintiff's debt to the Defendant would be discharged in this way, the strength of the Defendant's argument about the implausibility of the Plaintiff's version of the agreement, is significantly diminished. Not surprisingly, therefore, this finding is challenged by the Defendant. The Plaintiff's account with the Defendant showed that on a number of previous occasions discounted cheques had been dishonoured and returned to the Defendant unpaid. Moreover, the cheques which the judge had been referring to were three US$ cheques. Two of them were in fact dishonoured within a few weeks of 15 December 1994.

13. I see the force of this argument, but the judge was entitled to regard it as neutralised by one feature of the case which he regarded as highly significant and which suggested that there was no link between the agreement and the Plaintiff's debt to the Defendant. When giving evidence, Mr Ameen accepted that the records of the Plaintiff's account with the Defendant had not reflected that the Plaintiff's debt to the Defendant had been off-set by the sale of the flat to the Defendant.

14. For these reasons, I do not regard the Plaintiff's version of the agreement as so inherently implausible that the judge must have erred in concluding that the Plaintiff's version of it was correct.

15. The factors which the judge allegedly failed to take into account. The next attack on the judge's finding is that he failed to take into account various features of the evidence which supported the Defendant's version of the agreement. In dealing with this argument, it is important to bear in mind that a judge is not required to decide every disputed issue of fact or to refer in his judgment to every part of the evidence. He is only obliged to decide those disputed issues of fact upon which in his view the ultimate liabilities of the parties depend, and he is only obliged to refer in his judgment to those parts of the evidence which he regards as significant. With that comment, I propose to address the principal features of the evidence which are said to support the Defendant's version of the agreement but which the judge did not refer to in his judgment.

16. First, the formal surrender agreement dated 10 January 1995 did not refer to the agreement alleged by the Plaintiff. That is correct, but if the point is a telling one, it could equally be said that it did not refer to an essential feature of the agreement alleged by the Defendant, which the Defendant would have wanted the Plaintiff to acknowledge - namely, that the Plaintiff was giving up any rights which he may have had to share in the proceeds of resale which would be all the greater as a result of his surrender of the tenancy. But the fact is that the point is not a telling one at all. The Plaintiff was required to sign the formal surrender agreement in order to ensure that he surrendered his tenancy. It was not necessarily the occasion on which the other terms of the agreement (whether those alleged by the Plaintiff or those alleged by the Defendant) would have been spelt out.

17. Secondly, the Board of Directors of the Defendant passed a resolution on 20 January 1995 ratifying the purchase of the flat. However, it did not refer to the agreement alleged by the Plaintiff. Exactly the same argument applies: it did not refer either to the rights which, on the Defendant's version of the agreement, the Plaintiff was giving up.

18. Thirdly, the Plaintiff did not produce any document in which the Defendant acknowledged that the agreement was subject to the terms alleged by the Plaintiff. That is correct, but it could be said with equal force that the Defendant did not produce any document in which the Plaintiff acknowledged that the agreement was subject to the terms alleged by the Defendant.

19. Fourthly, the Defendant did not sell the flat. Instead, it renovated the flat and continued to use the flat as staff quarters. Those facts, coupled with the fact that the Defendant never sued the Plaintiff for the debt due on the Plaintiff's account, are said to be consistent with the Defendant's case. That is correct. But it simply means that the Defendant's case has been a consistent one. It does not mean that the Defendant's case is true.

20. Fifthly, the Plaintiff claimed that the owner of the flat had agreed that from June 1994 he could remain in the flat rent-free until he was able to purchase the flat from her. It is said that that improbable claim was contradicted by

(a) the claim for possession of the flat by the owner in the Lands Tribunal in December 1994 on the ground that the Plaintiff had been in arrears of rent since the previous June, and

(b) the obligation which the Plaintiff assumed in the formal surrender agreement to pay all the rent due to the owner up to 14 March 1995 - a provision which would not have been required if the Plaintiff had not been liable for the rent since June 1994.

Thus, it is said that if the Plaintiff had lied when he had asserted that he had been permitted to remain in the flat rent-free, that affected his credibility on the critical issue as to the terms of his agreement with the Defendant.

21. Indeed, Mr Allman-Brown went further. If the owner of the flat was to obtain possession of the flat on the ground of the Plaintiff's arrears of rent, the Plaintiff would lose the benefit of being a sitting tenant. The threat of proceedings by the owner of the flat would therefore have given him less bargaining power with the Defendant. In these circumstances, would the Defendant have been likely to conclude an agreement with the Plaintiff on terms which meant that the Defendant got nothing out of the agreement? It must have been to avoid an argument of that kind that the Plaintiff lied about having been permitted to remain in the flat rent-free.

22. I am not persuaded by this argument. I do not think that the term of the formal surrender agreement relating to rent is of assistance. The occasions when unnecessary clauses are included in agreements drafted by solicitors (as the formal surrender agreement was) are legion. And the fact that the Plaintiff agreed to be liable for the rent due to the owner up to 14 March 1995 does not necessarily mean that he was accepting that any such rent was due. I accept that the claim in the Lands Tribunal shows that the owner of the flat was denying that the Plaintiff had been entitled to remain in the flat rent-free. But that does not necessarily mean that the Plaintiff did not genuinely think that he was entitled to remain in the flat rent-free.

23. In the final analysis, I am not convinced that this topic was so important to the issues which the judge had to decide that the absence of any reference to it in his judgment meant that the judge had not taken it into account. It is therefore quite possible that the judge either concluded that the Plaintiff had not been lying on the issue, or that even if he had been lying it did not affect the credibility of the Plaintiff's evidence as to the terms of the agreement. It should be noted that in deciding where the truth lay Mr Ameen's credibility was equally important, and the judge referred to a number of factors which caused him to characterise Mr Ameen as an unsatisfactory witness.

24. For these reasons, I do not regard those features of the evidence which the judge did not refer to in his judgment as so supportive of the Defendant's version of the agreement that the judge must have erred in concluding that the Plaintiff's version of it was correct.

25. The documents which the judge took into account. The judge is also attacked for treating two documents as supporting the Plaintiff's version of events when in truth they are said to have done nothing of the kind. First, the Plaintiff produced what purported to be instructions to a firm of estate agents to act as sole selling agents of the flat for the two weeks from 8 March 1995. Those instructions were on the estate agents' notepaper, and purported to have been given by the Plaintiff as the "landlord". The Defendant's case - though never expressly put to the judge - was that there were features about the document which suggested that it was not authentic and that it had come into existence for the purposes of the action. The judge did not question its authenticity. In the light of the evidence of the Plaintiff, he was entitled to do that. On that basis, the judge's reliance on the document was not misplaced: there would have been no reason for the Plaintiff to have had any contact with the estate agents if the Defendant's version of the agreement was correct.

26. Secondly, the Plaintiff produced a handwritten document dated 20 February 1995 on the notepaper of a handyman referring to works at the flat totalling $70,000.00. The document could just as easily be a quotation for works to be done as an invoice for works already done. The Plaintiff's evidence was that he had paid the handyman the $70,000.00 to which this quotation/invoice related. The judge accepted the Plaintiff's evidence, and regarded the document in the light of that evidence as inconsistent with the Defendant's version of the agreement, because if the Defendant's version of the agreement had been correct there would have been no need for the Plaintiff to have had any contact with anyone engaged to renovate or redecorate the flat.

27. Mr Allman-Brown argued that the judge should have placed no reliance on the document, because the judge should have rejected the Plaintiff's evidence that he had spent $70,000.00 on the flat. I accept that the judge could not have been criticised if he had rejected the Plaintiff's evidence on the topic. After all, Mr Ameen's evidence was that no work had been carried out in the flat by March 1995, there was a lack of evidence as to where the Plaintiff had got the whole of the $70,000.00 from, and there was some overlap between the works referred to in the document and the works referred to in invoices submitted to the Defendant by a contractor engaged on its behalf. But the judge accepted the Plaintiff's explanation for the apparent overlap, and notwithstanding the evidence to the contrary he was entitled to accept the Plaintiff's evidence on the topic.

28. For these reasons, I reject the suggestion that the two documents which the judge thought supported the Plaintiff's case did nothing of the kind.

29. Conclusion. It follows that the criticisms which are made of the judgment do not, in my opinion, establish either (a) that there was no evidence to support the judge's critical finding that the Plaintiff's version of the agreement was correct, or (b) that that finding was contrary to the documentary or other incontrovertible evidence which the judge must have overlooked, or (c) that the finding could only have been based on a misapprehension of the facts or on some other faulty process of reasoning - which are the circumstances in which, according to the ADS case, an appellate court is entitled to interfere with the findings of fact made at first instance.

Lack of authority

30. The judge found that the agreement to pay commission to Mr Ameen and Mr Patel did not render the agreement unenforceable. There is now no challenge to that finding. In addition, the judge found that Mr Ameen had had the Defendant's authority to contract with the Plaintiff in the terms alleged by the Plaintiff. That finding is challenged on this appeal.

31. The judge found that Mr Ameen had had the actual authority of the Defendant to contract with the Plaintiff in the terms alleged by the Plaintiff. But he added that even if he had not been persuaded of that, he would have been satisfied that Mr Ameen would have had the Defendant's apparent authority to do so. Mr Allman-Brown all but conceded that Mr Ameen would have had the Defendant's apparent authority to do so.

32. The judge found that purchasing property was within the scope of Mr Ameen's authority. He went on to conclude that that had given Mr Ameen the authority (actual or apparent) to agree to purchase that the flat on the terms alleged by the Plaintiff. I am not convinced that the one follows from the other. But in my view that possible defect in the judge's process of reasoning does not vitiate his ultimate conclusion, because on his findings of fact as to what was said at a meeting between the Plaintiff and Mr Patel in Bombay in February 1995, the agreement which Mr Ameen entered into with the Plaintiff must be regarded as having been ratified by Mr Patel on behalf of the Defendant.

33. I say that for this reason. Mr Patel was undoubtedly entitled to ratify the agreement on behalf of the Defendant, being no merely its Chairman but also one of its shareholders. And on the judge's findings of fact Mr Patel had been told by the Plaintiff at the meeting of the agreement which he had reached with Mr Ameen. I take that to mean that Mr Patel was told about the principal terms of the agreement, i.e. that no only would the flat be bought by the Defendant, but that the Plaintiff would be giving up his tenancy of it so that it could be resold at a profit, and that he would receive the net proceeds of resale less certain deductions. One of those deductions would be the $200,000.00 to be paid to Mr Patel. It is true that the judge found that Mr Patel had not then been told by the Plaintiff about the $100,000.00 which Mr Ameen was to receive, but the fact remains that the Defendant took no steps to rescind the agreement for lack of authority on Mr Ameen's part when Mr Patel discovered the other terms of the agreement. If the Defendant did not take any steps then to rescind the agreement for lack of authority on Mr Ameen's part as a result of what Mr Patel was told in Bombay, it would not have taken any step to rescind the agreement when it discovered that the Plaintiff's share of the profit generated by the resale would be further reduced by the $100,000.00 payable to Mr Ameen.

The quantification of the Plaintiff's loss

34. The judge awarded the Plaintiff damages of $936,950.00 plus interest at the rate of 8.5% from 2 July 1995 until judgment and thereafter at the judgment rate. There is no dispute about the rate of interest or the date from which it would accrue, but three elements in the calculation of the Plaintiff's damages are challenged. Two are uncontroversial. First, it is accepted that the judge failed to deduct from his award of damages a sum to reflect the agreed deduction of interest on the $2.6m. up to the time when the flat would have been resold. It was agreed that that figure for interest is $104,000.00, and that the Plaintiff's damages should be reduced by that amount. Effect was given to that agreement by amending the judgment to $832,950.00. Secondly, it is accepted that although the judge gave credit to the Plaintiff for the $70,000.00 decorating costs which he had paid, he failed to include that in the global figure for decorating costs which should have been deducted from the damages. It is accepted that the Plaintiff's damages should be reduced by that amount as well.

35. The only other element in the calculation of the Plaintiff's damages which is challenged is the figure which the judge took for the estimated market value of the flat at the time when it should have been resold. The judge noted that it had been advertised by Mr Ameen in April 1995 at a selling price of $4m. The judge said that he was satisfied that that was "realistic price", and he therefore equated that with the estimated market value of the flat.

36. I have very great sympathy for the judge. Only experts can give opinion evidence, and therefore only valuers could have given evidence as to what the value of the flat would have been in July 1995 (which the judge took as the month by when the flat should have been resold). The judge did not have the benefit of such evidence. There was therefore no proper evidential basis upon which he could have said that $4m. was "realistic". The price at which it was advertised could not have provided a proper evidential basis because that is what the Defendant was asking for the flat, which is not necessarily what it could have expected to get for it.

37. We are today in no better position than the judge to determine the market value of the flat in July 1995. It is, I think, not appropriate to order that this issue be re-tried (whether by a judge or a master), because even then the parties may not wish to go to the expense of instructing valuers. The best I can do in order to do justice between the parties is to take a figure which represents the lowest figure which such a valuation might have been against the background of (a) the fact that I can take judicial notice of the fact that the property market was steadily improving in the first six months of 1995 and (b) the evidence that Mr Ameen

(i) believed in December 1994 (based on the inquiries made by one of his managers) that the flat was then worth $3.5m. with vacant possession, and

(ii) advertised the flat in April 1995 with an asking price of $4m.

In my view, such a figure would be a figure no greater than $3.75m. Accordingly, a further $250,000.00 must be deducted from the damages.

38. The two sums to be deducted from the amended judgment - $70,000.00 and $250,000.00 - amount to $320,000.00, and accordingly the damages of $832,950.00 must be reduced to $512,950.00.

Conclusion

39. For these reasons, I would dismiss the appeal insofar as it relates to the liability of the Defendant to the Plaintiff. but I would allow the appeal as to the damages which the judge awarded. I would set aside the judge's award for damages, and substitute for it an order that the Defendant must pay damages to the Plaintiff in the sum of $512,950.00 with interest thereon at 8.5% from 2 July 1995 until 28 January 2000 (the date of the judgment below) and thereafter at the judgment rate. As for costs, the reduction in the damages has been by a sufficiently large margin to justify an order for costs which reflects the fact that although the appeal against liability failed the appeal against the amount of damages succeeded. The order nisi which I would make as to costs is that the Defendant should pay to the Plaintiff two-thirds of his costs of the appeal, to be taxed if not agreed. The order for the Plaintiff's costs in the Court of First Instance must stand.

40. Finally, a few weeks prior to the hearing of the appeal, execution of the judgment was stayed pending the outcome of the appeal on condition that the Defendant paid into court a sum which together with interest eventually amounted to $1,068,365.00. That now remains in court. Mr Allman-Brown intimated that if the appeal was dismissed (save as to quantum) he would apply for a stay of execution of the judgment pending the determination of the Defendant's claim against the Plaintiff for the sums currently due on the Plaintiff's account with the Defendant. That sum is said to amount to US$65.914.00 plus interest. No such claim had in fact been brought by the Defendant, though Mr Allman-Brown was hoping to make the claim by applying for leave to amend the Defence to add the claim by way of counterclaim. We intimated that it may be more appropriate for an application which has the effect of freezing the money in court to be made to a judge of the Court of First Instance in fresh proceedings brought by the Defendant claiming the sum due on the running account. I say no more on that topic.

Rogers JA:

41. I agree that the appeal as to liability should be dismissed. I do not consider that grounds have been made out that would warrant this court disturbing the Judge's findings as to fact, particularly in relation to the credibility of the witnesses.

42. In relation to the appeal as to the damages, in the absence of any valuation evidence as to the value of the flat at the relevant time, the court was placed in a very difficult position. In those circumstances, it seems to me that it would have been appropriate to give some discount on what appears to have been the seller's asking price. Quite how much that discount should be seems to me to be debatable. In the absence of any further assistance that the Court can derive from the evidence, I would agree with the figure proposed by Keith JA.

Godfrey V-P:

43. I agree with Keith JA's judgment and that we should make the orders which he has proposed.