ONG YIP CHUNG AND OTHERS v. TERRACE ON THE PEAK (HONG KONG) LTD

HCA749/1994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 749 OF 1994

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J U D G M E N T

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1. The 1st to 4th plaintiffs are joint applicants for subscription of shares in the defendant. They sought to withdraw the application and claimed the return of an initial deposit of $2 million. The defendant contested that the plaintiffs are not entitled to the return of the instalment, and counterclaimed the two outstanding instalments.

The Background

2. The following facts are not in dispute between the parties.

3. In September 1993, Messrs Ron Brown, Mark Ashton and Philip Kung were the promoters of a Caribbean theme restaurant to be opened on the Peak. They invited the 1st and 3rd plaintiffs to invest in the restaurant.

4. The defendant was a shelf company owned by Brown and Terrace Holdings Limited ("THL") each holding one share of $1. Brown, Ashton and Kung were the directors of the defendant. It was intended that the investment would be through the defendant.

5. On 8 October 1993, Brown, Ashton and Kung met the 1st and 3rd plaintiffs at the Dynasty Club. The two parties come to the following understanding :

(a)	The 1st and 3rd plaintiffs would subscribe for 500,000 shares representing 50% shareholding in the defendant. The subscription amount for these shares was $5 million, of which $500,000 was to be applied to the actual subscription of shares in the defendant, and $4.5 million was to be a shareholder's loan to the defendant.
(b)	The said sum would be paid by three instalments of $2 million; $1.5 million and $1.5 million;
(c)	Each side would have the equal number of directors on the board of the defendant.

6. On 15 October 1993, Brown sent the following documents drafted by him to the 1st and 3rd plaintiffs :

(a)	a covering letter ("Covering Letter");
(b)	a memorandum entitled "Offer for Subscription of 500,000 shares of HK$1 each" in the defendant ("Memorandum"); and
(c)	an Application for Shares in the Company" ("Application").

7. The relevant terms of the Memorandum are :

"This Memorandum has been prepared for the purpose of giving information to certain selected individuals and corporations with regard to Minigo Limited, a company whose name shall be changed to Terrace on the Peak (HK) Limited (the 'Company'). It is being distributed on a confidential basis in connection with an offer for subscription of shares in the Company.

This copy numbered 1 and the accompanying Application Form is for the personal use of Mr. and Mrs. Henry Ong.

....

1. Offer for subscription

This Memorandum is published in connection with an offer for subscription by you of 500,000 shares of HK$1.00 each in the Company ('Shares') at a price of HK$1.00 per Share, subject to and upon the terms and conditions contained herein and in the application form herewith enclosed. The Shares available for subscription, if all are subscribed, will constitute fifty per cent (50%) of the entire issued share capital of the Company.

Currently, the Company has an authorized share capital of HK$1,000,000 divided into 1,000,000 shares of HK$1.00 each, all of which shall be issued fully paid and beneficially held by Teltorial Limited, a company whose name shall be changed to Terrace Holdings Limited ('THL').

It is a condition of application that each person subscribing one Share must advance to the Company a loan of HK$9.00 ('Shareholders' Loan'), so that, for every 100,000 Shares subscribed a Shareholders' Loan of HK$900,000 shall be advanced to the Company.

....

2. Terms of Subscription

Initial applications for Shares must be made in accordance with the Appendix hereto and must be received no later than 18th October 1993.

The Shareholders' Loan and payment for the Shares is payable by instalments on or before the following dates:

1st instalment of HK$2,000,000 : upon application

2nd instalment of HK$1,500,000 : 18 November 1993

3rd instalment of HK$1,500,000 : 18 December 1993

If any amount payable by an applicant shall not be paid as and when the same shall become due, THL may cancel your right to subscribe the shares. In that event, those portions of the Shareholders' Loans that already have been advanced to the Company still shall be subject to the conditions set out below. No refund shall be made except strictly in accordance with the provisions of paragraph 4(d) below.

Shares will be allotted and issued on 19th December 1993 (and share certificates issued accordingly), subject to payment in full of the applicant's Shareholders' Loan and the subscription money on their respective due dates. The directors of the Company shall determine the order and amount in which approved application monies are to be allocated to Shareholders' Loans and subscription for shares.

....

The Company's directors have full discretion to reject or accept any application, in full or in part, without assigning any reason therefor. If applications are received in excess of the Shares available for subscription, the same directors shall have full discretion as to the basis of allocation to determine each applicant's entitlement to Shares.

The Company reserves the right to revise the terms of the Offer for Subscription or extend the date by which applications must be received and all references to the Offer to Subscribe in this Memorandum and in the Application Form shall include any such revision and/or extension.

....

4. Terms of the Shareholders' Loans

The Shareholders' Loans shall be subject to the following conditions:-

(a)	they shall be unsecured;
(b)	they shall not carry interest at a rate to be determined by the directors of the Company;
(c)	they shall not be transferable or assignable without the Company's prior written consent;
(d)	they only shall become repayable either -

(i)	upon and to the extent determined by resolution of the board of directors of the Company where, in the opinion of the board, the Shareholders' Loans (or part thereof) are in excess of the requirement of the Company (having regard to the accumulated reserve, the projected earnings or otherwise), in which event repayment of the Shareholders' Loans (or part thereof) shall be made pari passu to the parties entitled, provided that the Company shall not in any event be obliged to make such repayment to a holder of any Shares that have not been fully paid-up, or
(ii)	upon winding up of the Company.

....

Appendix I

A. Procedure for Application

....

Completion of the application form will constitute irrevocable instruction and authority by the applicant to Messrs Richards Butler, Solicitors, to present the accompanying cheque(s) or cashier order(s) for clearance, to collect and hold the cleared funds as stakeholder, and to release such funds to the Company upon receipt of written confirmation from the Company that the applicant's application for Shares has been accepted, in whole or in part.

The Directors of the Company have full discretion to reject or accept any application, in full or in part, without assigning any reason therefor. If applications are received in excess of the Shares available for subscription, the directors of the Company shall have full discretion as to basis of allocation to determine each applicant's entitlement to Shares.

....

B. Posting of Share Certificates and Return of Application Monies

No receipt will be issued in respect of any application monies received but share certificates will be sent through the post to successful applicants for Shares, in due course and at their own risk, to the address specified on the application form. If an application for Shares is rejected or is accepted in part only, the application monies or the appropriate portion thereof, will be refunded, without any interest, either by returning the relevant cheque or cashier order or by sending a cheque made out to the applicant, in each case, by post and at the risk of the relevant applicant to the address specified in the relevant application form."

8. The relevant terms of the Application are:

"I/We apply for ________ shares of par value HK$1.00 each in the capital of the Company ('Share') at the subscription price of HK$1.00 per Share, subject to the terms of the Memorandum and Articles of Association of the Company and the conditions set out in the memorandum dated 14th October 1993 (the 'Memorandum') sent to me/us, which terms shall be deemed to be incorporated in and form part of this Application Form, which shall be read and construed accordingly.

In Consideration of your acceptance of my/our application for Shares and the Company's approval of this transfer, I/we also agree and undertake to the Company to contribute a shareholder's loan to the Company on the conditions set out in the Memorandum. I/We enclose a cheque/cashier order for ____________________, drawn payable to 'Minigo Limited/Richards Butler Client Escrow Account' being payment of the first instalment of my/our shareholder's loan and of the subscription money for any Shares allocated to me/us.

I/We agree to be bound by the conditions set out in the Memorandum and, in particular, to make full payment on the respective due dates of the other instalments of my/our shareholder's loan and of the subscription money for any Shares allocated to me/us.

....

Completion of this application form will constitute irrevocable instruction and authorization by the applicant to Messrs. Richards Butler, Solicitors, to present the accompanying cheque(s) or cashier order(s) and any subsequent cheque(s) or cashier order(s) in payment of my/our full obligation under the Memorandum for clearance, to collect the cleared funds as stakeholder, and to release such funds to the Company upon receipt of a written confirmation from the Company that the applicant's application for Shares has been accepted, in whole or in part."

9. On 15 October 1993, the 1st to 4th plaintiffs signed the Application. On 18 October 1993, they sent a cheque for $2 million payable to "Minigo Limited / Richards Butler Client Escrow Account" issued by High & Mighty Co. Ltd for the 1st instalment.

10. On 19 October 1993, Brown sent the cheque with a covering letter to Richards Butler. The letter stated :

"I have prepared a different form of subscription letter for each company's subscribers, which will allow me to track each's share subscription applications. Only after all monies are in place will the respective company's board determine how to allocate such company's shares, the application of monies towards such company's equity/debt capital and issue share certificates."

11. On 28 October 1993, the receipt for the cheque issued by Richards Butler was sent to the 1st plaintiff.

12. Brown did not provide copies of the Memorandum and Application to Richards Butler, and Richards Butler were not aware of the stakeholding clause in the Application. The cheque was deposited into Richards Butler's client escrow account for the defendant.

13. On 29 October 1993, $899,212.50 was paid out of the escrow account for the deposit, stamp duty and legal costs and expenses of the lease at the instruction of the defendant.

14. The parties had an argument as to a 5% promoters' fee. On 29 October 1993, the 1st plaintiff wrote that the promoters' fee should be paid by the defendant and not from his 50% share of the dividends.

15. On 1 November 1993, Brown wrote to the 1st plaintiff, enclosing a tenancy agreement for his review and comments. Brown mentioned the concerns of the 1st plaintiff about the defendant's incorporation, directors and bank account. Brown said Kung would prepare weekly status reports so everyone knew what was going on. Brown stated that the defendant had Richards Butler holding the subscription monies in escrow, and a bank account could be opened once the defendant changed its name. He asked for the names of three directors representing the plaintiffs' side.

16. On the same day, the 1st plaintiff provided the name, occupation and address of four directors.

17. Brown replied that the previous agreement was each group should have two directors, and suggested the compromise of three directors each. The 1st plaintiff wanted to maintain four directors each.

18. On 3 November 1993, the 1st plaintiff wrote to Brown, Ashton and Kung asking them to fill in the bank account opening form for the defendant :

"Kindly sign and return to us within this week so that we could request M/s Richards Butler to credit the $4,000,000 into our account. If there is any expenses paid by you, the amount could be claimed back from this account."

19. On 15 November 1993, the 1st plaintiff wrote to Ashton :

"... This is really embarrassing that I, as the director of the company is not aware of what is going on till I was informed by the outsider. Till today, all the events were verbally informed by Philip and I believe as a limited company before a decision is made it should get the approval from the board. But now it seems that I was informed after the decision was made... A bank account is important for the limited company, so that all money used could have a record. All payments must have the approval and signed by the directors before it was made. We have already paid up HK$2M from our side but we don't see any proof to show that you have paid the same. As my money is deposited in Richard Butler Client Escrow Account, I am in doubt who has the right to use the money. Till today I have not given any consent to release any money... On 18 November we have to raise the 2nd fund, I hope we could have a proper procedure strictly follows the law of the limited company."

20. On 23 November 1993, Brown replied to the 1st plaintiff :

"1. Corporate Matters (Shareholders & Directors)

By way of background, Minigo Limited was, and still is a limited company that Philip, Mark and I acquired to implement a Caribbean theme food court at the Peak Galleria. To date, Philip, Mark and I remain as the only shareholders and directors of Minigo, with all requisite powers and authority to operate and manage it and we have done so in accordance with Hong Kong company laws.

... On 8 October 1993, at the Dynasty Club, you agreed to invest HK$5 million in the project but requested that the money be paid in instalments to match the project's expenditures. This meant that you would not become a fully paid investor until your entire HK$5 million was received by Minigo...

At this juncture, it is important for you to understand that, under the Memorandum/Application's terms, your group merely applied to become an investor in 500,000 shares of Minigo, and to make a loan to Minigo, each being subject to our group's acceptance of that application. Because your group was not to pay in its full share of HK$5 million until 18 December 1993, your group could not become a shareholder or have directors of Minigo before then...

Notwithstanding the above, as your group was a potential equal investor in our project, we agreed to provide your group, through you, with information on our progress, which we have been doing. However, we did not agree, at any time, to grant your group any veto power, control, or decision-making authority over our plans to implement our concept at The Galleria.

2. Bank Account Of Minigo

We have informed you, on several occasions, that Minigo's funds were placed into an escrow account with Richards Butler, as they are the solicitors firm handling Minigo's legal affairs. The nature of such an escrow account is simply that the firm holds Minigo's funds, on behalf of only Minigo and its shareholders and not for any one individual, subject to Minigo's directors' sole instructions to disburse the same.

3. Funds Invested

With respect to your comment that your group have paid its first instalment of HK$2 million towards the project but have not seen any proof that our group have paid its HK$2 million into our own project, the fact of the matter is that we already have paid into the project an amount exceeding HK$2 million. This is veriable by reference to our solicitors' escrow client accounts, in which our monies are deposited. Furthermore, our own group already has available for our project's use, during the next two months, the balance of the required funds to which we have committed.

....

5. Closing

If your group is dissatisfied with the manner in which we have been managing our project, in light of the clarifications above about your own group's status as potential investors in our company, you should discuss this with your other investors and determine whether and how you wish to proceed in respect of your further HK$3 million obligation. Our group already have done so."

21. On 18 November 1993, the 1st to 4th plaintiffs did not pay the 2nd instalment of $1.5 million.

22. On 26 November 1993, the 3rd plaintiff wrote to Brown, Ashton and Kung, re-iterating what the 1st and 3rd plaintiffs said were the terms of the oral agreement reached at the Dynasty Club.

23. On 1 December 1993, Brown replied to the 3rd plaintiff, stating that it found her reference to an "oral agreement" inexplicable :

"... Even if one were to accept that an 'oral agreement' did exist as at 8 October 1993, and we do not accept, the subsequent voluntary acceptance by your group of the subscription documents, with full knowledge of the contents therefore, clearly would have superseded and replaced such agreement. As such, any 'oral agreement' has no effect."

24. At the end of the letter, Brown wrote :

"Therefore, if your group cannot agree with or accept anything stated by us, other than on our own terms, in the light of our clarifications of your group's current status in respect of our company, you should determine whether you desire to continue your proposed investment in our project. Should you choose not to proceed under the terms of the subscription documentation, we will consider you to have cancelled your subscription for shares in Minigo Limited, with all attendant consequences."

25. On 3 December 1993, Brown wrote a without prejudice letter to Messrs Oldham, Li & Nie, former solicitors for the plaintiffs, stating :

"In order to place the recent exchange of correspondence in their proper context, it is obvious that we do not concur with your own client's perception of what was or was not agreed on 8 October 1993...

Notwithstanding this, purely for the sake of argument, even if we were to concur (which we do not) with your clients that an 'oral agreement' did exist, as from 8/10/93, our own understanding of such an agreement is so materially different from your clients' understanding of the same that there most certainly was not a 'meeting of the minds' sufficient to form a valid legal contract between us. That said, the only valid and legally binding document between us and your clients is the 4/10/93 Subscription Memorandum and Application for Shares in Minigo, which your clients signed and submitted to us, signifying their agreement with the terms and conditions therein...

In this light, the project belongs to, and will continue to be controlled by, both Mr. Kung and Mr. Ashton, who will manage it through to completion on the terms and conditions previously indicated. If your clients cannot agree with or accept the clear terms of this project, they clearly can withdraw from it.

... In the circumstances, there is nothing further to be gained by continued communication on this matter, save for your clients' written notice to us if they wish to cancel their subscription for shares in Minigo Limited."

26. On 18 December 1993, the 1st to 4th plaintiffs did not pay the 3rd instalment of $1.5 million.

27. On 17 January 1994, Messrs Oldham, Li & Nie wrote to the defendant giving notice that the plaintiffs' application for 500,000 shares dated 15 October 1993 was withdrawn and demanding a full refund of $2 million within three working days.

28. The defendant accepted that prior to 17 January 1994, no shares had been allotted to the 1st to 4th plaintiffs, nor was there any decision to do so.

The plaintiffs' evidence

29. The 3rd plaintiff's witness statement dated 11 September 1995 was admitted as she is now deceased.

30. The 3rd plaintiff exhibited the notes she made of the meeting on 8 October 1993 at the Dynasty Club. The notes recorded, inter alia, that each group would own 50% of the joint venture company and each to have three directors. The defendant could be renamed for that purpose. Each group was to pay $5 million into the account of the joint venture company by three instalments of $2 million, $1.5 million and $1.5 million. The address of the joint venture company was to be changed to the address of High & Mighty, and the joint venture company would employ a management firm to manage the restaurant to avoid future conflicts of the group.

31. The 3rd plaintiff said she did not read the terms of the application documents and left it to the defendant. She became worried when they were not issued with the shares after the $2,000,000 were paid. On 26 November 1993, she met with Ashton and Kung. Instead of getting any assurance that the other side was to perform their obligations, Kung said they could not cooperate with the 1st plaintiff and they were prepared to return the $2,000,000. Ashton also said the restaurant should be managed by him instead of a management company as he came from the Caribbean. The meeting ended on an unsatisfactory note. The 3rd plaintiff authorised the 1st plaintiff to withdraw the application for shares.

The defendant's evidence

32. Brown gave evidence. He said the application was accepted in part upon it was received on 18 October 1993. The acts of acceptance were :

(a)	the acceptance and the acknowledgement of receipt of the cheque for $2 million (sent on 28 October 1993);
(b)	$899,212.50 were paid out of the escrow account for the deposit, stamp duty and legal costs and expenses of the lease (on 29 October 1993); and
(c)	he asked the 1st plaintiff for the names of the directors representing the plaintiffs (on 1 November 1993).

33. Brown agreed that the plaintiffs were never informed of the acceptance orally or in writing, but said there was communication in action by the defendant in using part of the $2 million to pay the rental deposit. He said the 1st plaintiff knew the rental tenancy deposit was due on 18 October 1993 and also understood the $2 million would be used to match the expenditures. Brown said the understanding was stated in the Covering Letter :

"I have incorporated your suggestion into the documents that the various payments match expenditures and be made in three instalments (i.e., by 18 October, 18 November and 18 December). This will allow the shareholders to fund the project as it requires, prior to opening."

34. Brown explained that Richards Butler were stakeholders for the defendant because the defendant was the party who deposited the cheque. He said the letter dated 19 October 1993 enclosing the cheque to Richards Butler constituted written confirmation to Richards Butler that the plaintiffs' application for shares had been accepted, in whole or in part, as per the terms of the Application.

35. Brown said that at the insistence of the 1st plaintiff, the original contractor of the restaurant Genesis was replaced by Vaford and the design of the restaurant was changed at higher costs.

36. Kung had actually worked from the office of High & Mighty for some time.

37. Brown said the defendant never cancelled the plaintiffs' right to subscribe for the shares. Instead, the defendant deemed the application to be cancelled by the plaintiffs, as stated in his letter dated 1 December 1993. The defendant treated the $2 million paid by the plaintiffs to be entirely shareholders' loan under clauses 2 and 4(d) of the Memorandum.

38. Apart from the plaintiffs and the three promoters, there were seven other investors. They were to make up the remaining 50% which the three promoters were supposed to take up. After the plaintiffs failed to pay in the remaining $3 million, the defendant did not seek any other subscribers to replace the plaintiffs. Brown and the others put in another $2 million, and the restaurant was opened and ran the full term of the lease until 2000. By reason of the shortfall of $1 million, the restaurant suffered a diminution in quality which was difficult to quantify.

The issues

39. It is common ground between the parties that the starting point is that the plaintiffs have made an offer to the defendant for a subscription of shares in the defendant. The terms of the offer are contained in the Covering Letter, Memorandum and Application.

40. There is no issue that the 1st to 4th plaintiffs have made a joint application to the defendant notwithstanding that the invitation to subscribe shares was made to the 1st and 3rd plaintiffs personally.

41. The notes of the 3rd plaintiff purportedly recording the oral agreement at the Dynasty Club were challenged as to accuracy and contemporaneity. The plaintiffs did not rely on the notes as terms of an agreement, but as the 1st and 3rd plaintiffs' understanding of the deal.

42. Mr Pow submitted the plaintiffs' case as follows :

(a)	there is no terms in the Memorandum or Application stating the offer to be irrevocable, and it can be withdrawn before acceptance and communication thereof;
(b)	the plaintiffs had withdrawn the offer before the defendant accepted and communicated it to the plaintiffs;
(c)	even if the offer was accepted, there is no binding agreement as there is no consideration moving from the defendant;
(d)	even if there was a binding agreement, clauses 2 and 4(d) did not entitle the defendant to retain the $2 million as the defendant never cancelled the plaintiffs' right to subscribe;
(e)	it is unjust enrichment for the defendant to retain the $2 million.

43. Mr Bell for the defendant submitted the following case :

(a)	the offer was accepted by the conduct of the defendant;
(b)	knowledge or communication of acceptance can be inferred from the conduct of the parties;
(c)	there is consideration by mutual promises of each party;
(d)	upon default by the plaintiffs to pay the 2nd and 3rd instalments, the defendant is entitled to treat the $2 million fully as shareholders' loans under clauses 2 and 4(d) of the Memorandum;
(e)	the plaintiffs cannot recover the value of their part performance in an entire contract;
(f)	even if there is no consideration, the plaintiffs are estopped from suing for the refund of the $2 million.

Whether the offer was accepted

44. Mr Pow submitted that there can be no binding contract unless and until the defendant allots the shares to the plaintiffs. He relied on Pennington's Company Law (8th Edition, 2001), at p.346 :

"It is the application made by an applicant to the company, or to the intermediary which is marketing the securities, for a particular number of shares or other securities which is the offer, and a contract is concluded only when the company or intermediary accepts the offer by allotment the shares or securities applied for and notifies the investor that it has done so."

45. Mr Bell submitted that the documents did not stipulate that acceptance was to be in writing or in any particular form. Hence, it could be accepted by conduct. Acceptance of the application was an entirely separate issue from allotment of the shares or appointment of the plaintiffs' nominees as directors, which could only come later.

46. Mr Bell submitted that the conduct of the parties show that the application has been accepted :

(a)	there was no rejection of the application;
(b)	the cheque for $2 million was received and used by the defendant;
(c)	Brown asked the 1st plaintiff for the names of the directors;
(d)	Brown sought the 1st plaintiff's views and comments on the tenancy agreement;
(e)	Kung agreed to provide the 1st plaintiff with weekly status report;
(f)	dismissal of Genesis and appointment of Vaford as the contractor and change of the design of the restaurant at higher costs at the insistence of the 1st plaintiff;
(g)	Kung has used High and Mighty's office.

47. Mr. Bell submitted that the conduct of the parties also raises an inference of communication of the acceptance :

(a)	the 1st plaintiff thought he was already a director of the defendant as at 15 November 1993;
(b)	the 1st plaintiff requested a bank account to be opened in the name of the defendant;
(c)	the 1st plaintiff mentioned his share of the dividend when he argued about the promoter's fee;
(d)	the plaintiffs must have known the $2 million would be used by the defendant as the Covering Letter stated the instalments were to match the expenditures;
(e)	the $2 million cheque was made payable to the defendant's client escrow account instead of to a stakeholder's account;
(f)	Messrs Oldham, Li & Nie mentioned the plaintiffs' "rights in the project" when writing to the defendant.

48. Mr Bell submitted that by reason of the prior discussions between the parties, it was a forgone conclusion that the application would be accepted upon submission and the plaintiffs knew it.

49. Mr Pow submitted that even assuming acceptance may be by conduct before the actual allotment of shares, there can be no acceptance and communication on the facts :

(a)	acceptance must be unconditional and the Memorandum which gives the discretion to the defendant to accept or reject the application is inconsistent with acceptance;
(b)	the defendant may exercise the discretion to allot any number of shares and the plaintiffs will not know of the acceptance until notified of the actual shares allotted;
(c)	Brown's evidence that the application was accepted in part was inconsistent with his evidence that the defendant would not allot shares pro rata to the plaintiff and tolerate a 20% minority;
(d)	the use of the $2 million to pay for the rental deposit was contrary to the terms of the stakeholding clause and the defendant cannot rely on its wrongful act as acceptance;
(e)	the defendant's instruction to Richards Butler to pay the rental deposit was not copied to the plaintiffs;
(f)	as at 15 November 1993, the 1st plaintiff believed that the $2 million was held by Richards Butler and he had not consented to any release or use thereof;
(g)	the defendant's letter dated 23 November 1993 stated the application was subject to acceptance and the plaintiffs could not become shareholder and directors until full payment of $5 million;
(h)	the defendant's letter dated 1 December 1993 stated that the consultation of the 1st plaintiff was on the basis that he was a potential equal investors and he was never granted any decision making power.

50. In order to assess the 1st and 3rd plaintiffs' conduct and states of mind, it must first be ascertained their understanding of the discussions at the Dynasty Club. Notwithstanding that the 3rd plaintiff could not give evidence and be cross-examined, I accepted her notes as authentic and contemporaneous of what she perceived at the meeting. I find that they reflected the 1st and 3rd plaintiffs' understanding of the deal albeit they have later signed the Application in quite different terms.

51. The fact that the 1st plaintiff thought that he had become a director of the defendant when he was asked by Brown to give the nomination must have been based on his understanding of the deal. However, it was neither here nor there as he was never made a director. His misunderstanding was soon corrected by the defendant that the plaintiffs' application was subject to acceptance and they could not become shareholders and directors before the full payment of $5 million.

52. The fact that the 1st plaintiff knew that a rental deposit had to be paid soon did not necessarily mean that he knew that it would be paid out of his $2 million. The rental deposit was paid on 29 October, but as at 1 November, Brown stated the subscription monies was still held by Richards Butler when the 1st plaintiff sought the opening of the bank account of the defendant to hold the monies.

53. The stakeholding clause stipulated that the funds were to be released to the defendant upon receipt by Richards Butler of written confirmation that the applicant's application for shares had been accepted, in whole or in part. The clause provided release upon acceptance, and the corollary that release meant acceptance cannot not be true. At any rate, Brown's argument that it was held as client's money for the defendant and not stakeholding for the plaintiff is contrived and contrary to the clear and plain meaning of the words.

54. I find that the defendant's true stance was revealed by Brown's letter dated 23 November 1993 :

"At this juncture, it is important for you to understand that, under the Memorandum/Application's terms, your group merely applied to become an investor in 500,000 shares of Minigo, and to make a loan to Minigo, each being subject to our group's acceptance of that application."

55. There was no subsequent correspondence on the part of the defendant inconsistent with this stance. There was never allegation of breach of contact when the plaintiffs did not pay the 2nd and 3rd instalments. The defendant addressed the plaintiffs as potential equal partners, and asked the plaintiffs to consider withdrawing from the project when they disagreed on the design of the restaurant.

56. In all the circumstances, I reject the evidence of Brown and find that the defendant has not accepted the application for subscription by conduct, nor communicated it to the plaintiffs. The plaintiffs were entitled to withdraw the application as they did on 17 January 1994. There was no binding contract between the parties.

Consideration

57. Mr Pow submitted that the defendant could not have provided consideration until it actually allotted shares to the defendant.

58. Mr Bell submitted that consideration could be executory by mutual promises. He referred to Chitty on Contracts, Vol. 1 (28th Edition, 1999), at para.3-011 :

"It is common to distinguish between executed and executory consideration. The former consists of the performance of an act or forbearance in return for a promise... Executory consideration, on the other hand, consists of mutual promises. The rule that such promises can amount to consideration for each other has long been settled. Hence, if a seller promises to deliver goods in six months' time and the buyer to pay for them on delivery, there is an immediately binding contract from which neither party can withdraw, though, of course, performance cannot be claimed until the appointed time."

59. Mr Bell submitted that the promises are that the plaintiffs will pay a total of $5 million in three instalments, whereupon the defendant was to allot the shares on 19 December 1993.

60. However, there is a fallacy in this argument because according to the terms of the Memorandum, the defendant is not obliged to allot 500,000 shares or any part thereof to the plaintiffs. It is within its full discretion to accept or reject, and to determine each applicant's entitlement to shares. Hence, there is no definite promise constituting consideration moving from the defendant.

61. Mr Bell submitted that the defendant's forbearance to invite other investors once the plaintiffs submitted their application constituted consideration on the part of the defendant.

62. There is no evidence of forbearance. Brown simply said he had not invited other investors after the plaintiffs applied for shares. Further, forbearance is contrary to the contemporaneous documents :

(a)	the Memorandum was copy No.1;
(b)	its terms envisage applications received in excess of the shares available for subscription and the directors shall have full discretion to determine each applicant's entitlement to Shares;
(c)	Brown told Richards Butler that he had prepared a different form of subscription letter for each company's subscribers, which would allow him to track each share subscription applications and only after all monies were in place would the defendant determine how to allocate the shares; and
(d)	apart from the promoters and the plaintiffs, there were in fact seven other investors.

63. I find there was no forbearance constituting consideration on the part of the defendant.

Shareholders' Loan

64. The shareholders' loan in default of payment of the instalments shall only arise if there is a binding contract on the terms of the Memorandum and Application. I have found against any binding contract. Nevertheless, I shall consider the construction of clause 2.

65. The relevant part of clause 2 reads :

"If any amount payable by an applicant shall not be paid as and when the same shall become due, THL may cancel your right to subscribe the shares. In that event, those portions of the Shareholders' Loans that already have been advanced to the Company still shall be subject to the conditions set out below. No refund shall be made except strictly in accordance with the provisions of paragraph 4(d) below."

66. Mr Pow submitted that the clause shall only apply in the event THL cancels the plaintiffs' right to subscribe the shares. THL may either cancel the right to subscribe, or it may extend time or allot shares pro rata the instalment paid. Hence cancellation is discretionary and not automatic. Brown said the defendant never cancelled the plaintiffs' right to subscribe, and the correspondence clearly show that time was extended. Hence, the event that invoked the application of clause 4(d) never arose.

67. Further, Mr Pow submitted that the interpretation of the clause is subject to the "consideration clause" in the application :

"In consideration of your acceptance of my/our application for Shares and the Company's approval of this transfer, I/we also agree and undertake to the Company to contribute a shareholder's loan to the Company on the conditions set out in the Memorandum."

The loan is called a shareholders' loan, and it must be subject to the acceptance of the application for shares and of the transfer. As not even one single share has been allotted to the plaintiffs, the defendant is not entitled to treat the $2 million as shareholders' loan.

68. Mr Bell submitted whether the defendant has cancelled the plaintiffs' right to subscribe or the defendant has deemed the plaintiffs to have cancelled the application is a matter of semantics. In any event, the plaintiffs have defaulted in the payment of the 2nd and 3rd instalments and their application has been cancelled by necessary implication as per the defendant's letter dated 1 December 1993.

69. Further, the provision for shareholders' loan in the event of default is independent of the shareholders' loan upon approval and the application of transfer of shares.

70. I find the provision for the shareholders' loan provision in the event of default a draconian provision because in effect, the loan is only repayable in the discretion of the directors of the defendant or upon winding up. The Memorandum is incorporated by the Application and the two documents must be read jointly. The shareholders' loan provision is inconsistent with the "consideration clause" in the Application. The inconsistency must be construed contra proferentem the defendant as the drafter of the documents. I hold that the "consideration clause" in the Application takes effect over the provision for shareholders' loan in the event of default in clause 2 of the Memorandum. The shareholders' loan does not arise in the absence of any approval and the application of transfer of shares.

71. In any case, the event triggering the shareholders' loan under clause 2 never occurred as the defendant never cancelled the plaintiffs' right to subscribe. By reason of the nature of the shareholders' loan, it must also be construed contra proferentem to the effect that cancellation made or deemed to have been made by the plaintiffs cannot be taken to be cancellation by the defendant.

Part performance

72. Mr Bell submitted that the contract of subscription of shares is an entire contract upon the payment of the full $5 million. If the court holds that the defendant did not cancel the plaintiffs' right to subscribe so as to bring clause 4(d) into operation, there being no term in the contract as to how the part payment of $2 million should be dealt with, the law as to part performance must apply. He referred to Chitty on Contracts, Vol.1 (op. cit.), at para.22-03 :

"Where a party has performed only part of an entire obligation he can normally recover nothing, neither the agreed price, since it is not due under the terms of the contract nor any smaller sum for the value of his partial performance, since the court has no power to apportion the consideration. The refusal of pro rata payment is based on the inability of the court, as a matter of construction, to add such a provision to the contract, and also upon the rule that the mere acceptance of acts of part performance under an express contract cannot, taken alone, justify the imposition of a restitutionary obligation to pay on a quantum meruit basis."

73. As I have found against any binding contract, the point on part performance does not arise.

Estoppel

74. Mr Bell submitted that even if there is no binding contract because the defendant's acceptance was not communicated to the plaintiffs, or there was no consideration, nevertheless the plaintiffs were estopped from suing for the return of the $2 million. The grounds are :

(a)	the plaintiffs had represented orally or by conduct to invest $5 million and not to withdraw the offer; and
(b)	the defendant had acted on the representation in using part of the $2 million on the rental deposit.

75. I do not find that there was any representation that the plaintiffs would not withdraw the application. Brown's evidence was that the 1st and 3rd plaintiffs expressed their form intention to invest $5 million in the project. He said there was no discussion or any intimation of the possibility of withdrawing or revoking the application. The statement of intention cannot give rise to any estoppel.

76. Further, I do not find the defendant had relied on any representation to its detriment. Brown had on three occasions written to the 1st plaintiff asking the plaintiffs to consider whether to proceed, to cancel or withdraw the application. This stance is wholly inconsistent with the allegation of relying on the plaintiffs' representation of not to withdraw from the project. The rider that any withdrawal was with attendant consequences was neither here nor there as there was never mention of the deemed shareholders' loan under clauses 2 and 4(d).

Unjust enrichment

77. Mr. Pow relied on unjust enrichment as a consequence of the lack of entitlement to retain the $2 million.

78. Mr. Bell submitted that it is unjust to the defendant to grant restitution to the plaintiff. He referred to on Chitty on Contract, Vol.1 (op. cit.), para.30-017:

"Where a ground upon restitution may be granted is established, relief will nevertheless not be granted if it would not be 'unjust' to allow the defendant to retain that received at the claimant's expense. Restitution is denied where the defendant cannot be restored to his original position, is a bona fide purchaser, or where public policy precludes restitution, or the plaintiff is estopped. It is also denied where the benefit was conferred:

(a) as a valid gift;

(b) pursuant to a valid common law, equitable or statutory obligation owed by the claimant to the defendant;

(c) by the claimant while performing an obligation owed to a third party;

(d) by the claimant acting voluntarily in his own self-interest;

(e) in submission to an honest claim, under process of law or a compromise of a disputed claim and;

(f) by the claimant acting 'voluntarily' or 'officiously'."

Mr. Bell submitted the following :

(a) the defendant cannot be restored to its original position;

(b) the benefit was conferred pursuant to a contractual obligation;

(c) the plaintiffs were acting voluntarily in their self-interest;

(d) the plaintiffs are estopped.

79. I have already found against any binding contract or estoppel. I have also found that the application can be withdrawn, and the $2 million should be returned. The matter is entirely pecuniary and I cannot see why the defendant cannot be restored to its original position. I fail to see why it is unjust to return the $2 million to the plaintiffs.

The counterclaim

80. The counterclaim must also fail as I have found against any binding contract.

81. At any rate, I find that the defendant has failed to prove any damage. The defendant was able to raise $2 million upon the withdrawal of the plaintiffs. The restaurant opened and ran the full six-year term of the lease. There was no evidence of loss by reason of the shortfall of $1 million in investment.

Conclusion

82. Judgment is entered for the plaintiffs for $2 million. Interest at judgment rate shall run from the date of the writ. The counterclaim is hereby dismissed. The defendant shall pay the costs of the action to the plaintiffs.