CH'NG POH v. CHINA EVERBRIGHT LTD.

CACV 3805/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3805 OF 2001

(ON APPEAL FROM HCA NO. 427 OF 1998)

____________________

____________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. I agree with judgments of Le Pichon and Yuen JJA.

Hon Le Pichon JA:

2. This is an appeal from the judgment dated 31 October 2001 of Deputy High Court Judge Longley whereby the plaintiff's claim for damages for breach of an oral agreement allegedly reached between him and the defendant for the sale and purchase of the shares of a wholly-owned subsidiary of the defendant was dismissed with costs. At the conclusion of the hearing the appeal was dismissed. The court indicated that written reasons would be handed down later. This we now do.

Background

3. In 1988, the defendant then known as IHD Holdings Limited entered into a management agreement with Avon Investments Limited, ("Avon") a company owned or controlled by the plaintiff and secured the services of the plaintiff as the company's chairman and chief executive. One of the terms of the contract was that as chief executive the plaintiff would be entitled to "first class accommodation of his own choice that would reflect his seniority". To that end the company acquired No. 2 Moorsom Drive, Jardines' Lookout, ("the house") which the plaintiff and his family occupied. The house was held through a wholly owned subsidiary, Keepmore Limited, a shell company which had no other assets.

4. In February 1993, a year or so after his arrest by the ICAC, the plaintiff resigned as chairman and director of the company. He continued as chief executive of the company and his wife, Kong Yuk Chu, also a director of the company became chairman in his place. The ICAC investigations culminated in various criminal charges being preferred against the plaintiff in a trial which began in April 1994. Several months before the trial began, Avon which held a majority shareholding in the company agreed with China Everbright Holdings Limited that the latter could acquire a substantial shareholding in the company. China Everbright acquired its first tranche of shares in the company in December 1993.

5. On 5 March 1994, a board meeting was held in Singapore. Although by this time the plaintiff was no longer a director of the company, in accordance with the company's normal practice, he attended the meeting in his capacity as chief executive. Two officers of China Everbright attended this meeting: Mr Tong Xin as alternate for Madam Qiu Qing and Mr Wang Yake. It is the plaintiff's case that he reached an oral agreement with the board of the company at this board meeting for the plaintiff to buy and the defendant to sell the entire issued share capital of Keepmore at the price of $20.52 million. The plaintiff relied on the minutes of the board meeting ("the minutes") as evidencing that oral agreement which, by his pleading, the plaintiff acknowledged was "in truth and/or in substance" an agreement to sell the house to the plaintiff since Keepmore was nothing more than a vehicle for holding the house.

6. Nothing happened for several months. No document relating to the sale was executed by the parties. At a board meeting held on 25 August 1994 attended by the plaintiff's wife, it was recorded that:

"In respect of the resolution to sell the total issued shares ('Shares') of Keepmore Limited, a wholly owned subsidiary of the Company which holds the Property, it was resolved that the sale be held in abeyance and a fresh valuation on the Property be obtained for the purpose of the refixing the sale price of the shares in due course."

A year later, in August 1995, it was resolved at a board meeting, again attended by the plaintiff's wife, that the management be authorised to sell the house but that the plaintiff should be given a right of first refusal to purchase it at the then prevailing market value, such offer to be valid for 2 to 4 weeks. A letter offering the property at $23.5 million was sent to the plaintiff on 5 September 1995, valid until 30 September. As the plaintiff did not take up this offer, Keepmore sold the house to a third party on 3 October 1996 for $22.25 million. The plaintiff seeks damages based on the difference between the market value of the house as at 3 October 1996 and $20.52 million.

The judgment below

7. On the question whether there was a concluded oral agreement as alleged, the judge considered a number of matters. First, there were the board minutes which the plaintiff relied on as evidencing the oral agreement. The relevant part read:

"6. APPROVAL OF SALE OF KEEPMORE LIMITED

Mr. Ch'ng advised the board that the property ('House') owned by Keepmore Limited, one of the wholly owned subsidiaries of the Company, at No. 2 Moorsom Drive, Jardines' Lookout, Hong Kong was acquired for the use to the Chief Executive under the management agreement ('Management Agreement') entered into between the Company and Avon Investments Limited on 16th June 1988. The House was acquired for HK$5.35 million in 1988.

Mr. Ch'ng expressed his intention to purchase the total issued shares of Keepmore Limited which held only the House at a consideration based on the valuation assessed by the Company's valuers, Messrs. Chung, Chan & Associates, in their report initially prepared for the purpose of the redomicile exercise. Attached is a copy of their report valuing the House at HK$22.8 million.

The Directors resolved that the said shares be sold to Mr Ch'ng or his family company at HK$22.8 million with a ten per cent discount of the purchase price or with the equivalent amount paid by way of bonus.

It was resolved that subject to the compliance of The Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited ('Listing Rules'), the Company, being the beneficial owner, do sell to Mr. Ch'ng Poh or his family or his company nominee the total issued shares of Keepmore Limited at HK$22.8 million with a 10% discount of the purchase price or payment of the equivalent amount by way of bonus to Mr. Ch'ng Poh.

It was further resolved that Tan Sri Dato Shariff Ahmad be authorised to sign any agreement or documents relating to the said sale for and on behalf of the Company. It was further resolved that Tan Sri Dato Shariff Ahmad be authorised to approve any press announcements and circulars to be issued for publication and despatch to shareholders of the Company in compliance with the Listing Rules.

7. ACCOMMODATION FOR THE CHIEF EXECUTIVE

Under clause 11 of the Management Agreement, the Company was to provide first class accommodation for the Chief Executive. With the sale of the House, the Company had to look for accommodation for the Chief Executive. To save the time for looking for alternative accommodation, it was resolved that at the choice of the Chief Executive, the Company either lease back the House from Mr. Ch'ng, the new owner of Keepmore Limited, at market rent assessed by an independent estate agent and provide the same as accommodation for the Chief Executive or pay the Chief Executive a housing allowance on the basis of prevailing market rent for comparable accommodation and in the event that the course of leasing back the House was selected, it was resolved that Tan Sri Dato Shariff Ahmad be authorised to sign any agreement and documents relating thereto for and on behalf of the Company."

8. The judge noted that subsequent conduct on the part of the plaintiff did not sit comfortably with an oral agreement having been concluded. On a number of occasions after that board meeting, the plaintiff had referred to his having been "offered" or given "an option" to purchase the house or the shares of Keepmore. Specifically, these references were made in letters either written by the plaintiff or drafted by him and signed by his wife, in the letter before action from his solicitors and even in his witness statement. More importantly, in response to the letter dated 5 September 1995 from the company offering the plaintiff the house at a higher price, the letter dated 10 September 1995 which the plaintiff had drafted for his wife contained not a word of protest that the company was reneging on its earlier oral agreement. Instead, sometime prior to 30 September 1995, the plaintiff and his wife sent a note to the company seeking a discount of $1.5 million from $19.8 million, said to be the "board agreed valuation of approximately $22 million, less 10% discount as approved by the board" to reflect the cost of having to demolish illegal structures. The note which is undated is exhibit 8 to Heidi Chu's witness statement dated 14 January 1999. It is to be noted that this was effectively a counter-offer.

9. The judge heard oral evidence from the plaintiff and also from Miss Chu who had prepared the minutes. He came to the view that the plaintiff had not been "frank" with the court in attempting to explain his conduct, and that there were shortcomings in his memory of events said to have taken place on 5 March 1994 which rendered his evidence unreliable.

10. The judge found that the record of the board meeting provided by the minutes was consistent with the defendant's interpretation of those minutes, namely, that upon the plaintiff expressing a desire to purchase the Keepmore shares the directors resolved to authorise such a sale which was to be entered into by one of the board members. The judge agreed with the defendant's counsel that the cumulative effect of the unresolved "loose ends" - the date for transfer, the identity of the transferee and the mechanism to be adopted for the payment of the purchase price, whether it was to be the payment of a net sum or a higher price to reflect the net sum and a bonus of $2.8 million - was also consistent with the defendant's case.

11. In light of all those matters, the judge found that there was no concluded agreement reached on 5 March 1994. In case his conclusion were wrong, the judge went on to consider section 163 of the Companies Ordinance and found, based on White v Elmdene Estate Ltd [1960] 1 QB 1 at 16 that the transaction would have contravened that provision.

This appeal

12. The plaintiff seeks to disturb the finding of primary fact made by the judge below that no concluded oral agreement was reached between the plaintiff and the defendant on 5 March 1994 relating to the sale and purchase of the Keepmore shares. It is axiomatic that the party seeking to disturb the finding of fact faces a formidable threshold. Appellate courts do not lightly disturb a trial judge's evaluation of the facts. This "need for appellate caution" was explained by Lord Hoffmann in Piglowska v Piglowski [1999] 1 WLR 1360 at 1372E-F which was cited with approval by Bokhary PJ in Ting Kwok Keung v Tam Dick Yuen [2002] 1 HKC 601 at paragraph 41:

"... It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation."

Thus, an appellate court would only disturb an adverse finding of primary fact in very limited circumstances. Either

"(1) that there is no evidence to support it; or (2) that it is contrary to documentary or other incontrovertible evidence which the judge overlooked. It is not enough to show there is little evidence to support the judge's finding, or that it was 'contrary to the weight of the evidence'. The weight of the evidence is a matter for the trial judge. It does not matter how many witnesses say one thing, and how few say the contrary. The judge is perfectly entitled to prefer the evidence of the few to that of the many."

See per Godfrey JA in Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657 at 663H-I.

13. In seeking to disturb the judge's finding of primary fact, the plaintiff has put forward no fewer than 14 reasons under 5 broad heads. Virtually all the reasons went to the question of "weight". Mr Chan who appeared for the plaintiff frankly acknowledged that to succeed in this appeal he has to persuade this court that the minutes constituted incontrovertible evidence of the oral agreement and do not admit of any other interpretation.

14. Looking at the minutes objectively, whilst they might be capable of pointing to an agreement having been concluded between the plaintiff and the defendant, there are aspects which strongly militate against this inference. For example, the minutes recorded that it was resolved that Tan Sri Dato Shariff Ahmad "be authorised to sign any agreement" relating to the sale. That suggested that a sale and purchase agreement had to be signed in the future which would detract from there having been any concluded agreement on 5 March 1994. Moreover, the minutes can also fairly be read as doing nothing more than recording resolutions in principle that the company would do certain things. In these circumstances, the judge cannot be faulted for approaching the matter in the way that he did. He correctly took into account all the evidence adduced before him, including viva voce evidence.

15. The judge did not believe the plaintiff. He found his evidence to be unreliable. The following is an example which illustrates the point. When cross-examined as to the completion date, the plaintiff's first answer was:

"A. The completion date was at the discretion of the company."

(Tr. 19 (.0)

This is to be contrasted with what he said later:

"Q. Is it your case that you could call for completion of the sale at any time.

A. Yes, as well as the company could also call for completion at any time."

(Tr. 28 ((. H-I)

At the hearing, the point as to the completion date was put to Mr Chan who ended up by providing no less than four alternatives: that it was to be (1) at the company's sole discretion; (2) when called for by either party; (3) at the discretion of both parties; or (4) within a reasonable time.

16. In this connection, the question whether or not the absence of any agreement as to the completion date would render the oral agreement relied on by the plaintiff void for uncertainty, although not pleaded, appeared to have been a live issue at the hearing. In his judgment, the judge did not refer to the uncertainty point but considered the absence of any decision as to the time of the transfer of the shares as one of the unresolved "loose ends" the cumulative effect of which was consistent with the defendant's case. It is clear that the judge considered that no agreement had been reached regarding the completion date.

17. But the date for completion is an essential term of any contract for the sale and purchase of land in Hong Kong. It was so held by the Court of Final Appeal in Kwan Siu Man Joshua v Yaacov Ozer [1999] 1 HKC 150 at 159D and 166 H-I where Perry v Suffields Ltd [1916] 2 Ch 187 relied on by Mr Chan was distinguished. Since it is common ground (and it was so pleaded by the plaintiff) that "in truth and/or in substance" the agreement related to the sale and purchase of the house, the absence of agreement as to the completion date was fatal to the plaintiff's case in any event. A finding that the completion date had not been agreed would have led to the conclusion that there was no concluded agreement reached for the sale of the house.

Hon Yuen JA:

18. I agree with the judgment of Le Pichon JA which I have had the benefit of reading in draft.

19. I would only add that I found it difficult to understand the plaintiff's case as to whether the agreement allegedly reached on 5 March 1994 was (a) one where no further terms were to be agreed, or (b) one where there were further terms to be agreed. Mr Chan submitted that he wanted to argue both those alternative cases, with case (a) being his primary case and case (b) being his secondary case. However, case (a) is inconsistent with at least one of the four alternative dates for transfer of the shares. As for case (b), Mr Chan did not wish to be drawn into any submissions because that case is inconsistent with case (a). Therefore there were no submissions as to what the further terms to be agreed were and whether those terms were later agreed; and if so, when and what they were; and if not, whether the failure to agree those terms rendered the agreement unworkable.

20. Accordingly, I fail to see how it can be said that the judge's findings were in error when even at appeal stage, the plaintiff is shifting his ground.