CHEUNG YIU WING v. CELESTIAL ASIA SECURITIES HOLIDINGS LTD

HCA 609/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 609 OF 2000

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J U D G M E N T

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Introduction

1.  By this action, the Plaintiff, Mr Cheung Yiu Wing (“Mr Cheung”) seeks damages against the Defendant, Celestial Asia Securities Holdings Limited (“CASH”), for the breach of an alleged oral agreement, by which Mr Cheung says he agreed to sell 50 million shares in King Pacific International Holdings Limited (“KPI”) to CASH at a price of HK$1.90 per share.  According to Mr Cheung, the agreement was made between himself and Mr Bankee Kwan Pak Hoo (“Mr Kwan”), acting on behalf of CASH, during the morning of 10 January 2000.  Mr Cheung says that it was also agreed that a deposit of HK$15 million was to be paid by 14 January 2000, with completion to take place on 31 January 2000.

2.  CASH denies entering into any such agreement.  Its position is that although Mr Cheung and Mr Kwan did meet on the morning 10 January 2000, no such sale and purchase of KPI shares was discussed or agreed.  Rather, what was discussed was a placement by Mr Cheung, through CASH, of that quantity of KPI shares.

3.  CASH also contends even if Mr Kwan did make some agreement for the purchase of KPI shares from Mr Cheung, he did not do so on its behalf.

4.  It is not disputed that if such an agreement was made, and if CASH was bound by it, CASH did not comply with it and would therefore be in breach of it.

5.  However, even if CASH is liable for breach of contract as alleged, CASH submits that any damages awarded against it should be based on the difference between the contract price and the market price of the shares on 18 January 2000 (the date on which it says that Mr Cheung accepted its repudiation of the alleged agreement), rather than the (lower) market price as at 31 January 2000 (the date for completion under the alleged agreement).

The issues

6.  The issues for determination are therefore:-

(1)	Did Mr Kwan agree to buy 50 million KPI shares from Mr Cheung on the terms alleged?
(2)	If so, was Mr Kwan acting on behalf of CASH in making such agreement?
(3)	If so, it being accepted that the agreement (if made) was breached, what is the price by reference to which damages should be assessed?

Background

7.  Before considering the evidence in relation to the making of the agreement, it is convenient to set out some matters of background.

8.  In January 2000, both KPI and CASH were listed companies, their shares being listed on the Stock Exchange of Hong Kong Limited (“the Stock Exchange”).

9.  Mr Cheung was the chairman of KPI, and its managing director was a Mr Cheng Chao Ming (“Mr Cheng”).  KPI obtained its listing in the early 1990s.  At that time it was known as Yiu Wing International Holdings Limited.  As that name suggests, it was a company with which Mr Cheung was closely associated.  Mr Cheung had over the years built up a business in the construction industry, and this formed the core business of KPI at the time of its listing.  It also had a restaurant business, which formed a much smaller part of its activities.  In the mid 1990s, Mr Cheng and associates of his acquired a substantial interest in KPI by injecting into it certain infrastructure projects on the Mainland.  It appears that thereafter, KPI was effectively run in two divisions, with Mr Cheung running the construction and restaurant business from offices in Kowloon, while Mr Cheng ran the other parts of KPI’s business from offices in Hong Kong.

10.  It seems that from about 1996 onwards, KPI’s performance was somewhat mixed, with losses in some years and relatively modest profits in others.  In the year ended 31 March 1999, KPI made a substantial loss, in the order of HK$200 million.  According to Mr Cheung and his son Mr Cheung Wing Keung Samuel (“Samuel”), from about September 1999 onwards, they were not being provided with financial information in relation to KPI, in particular, in respect of its investments in China.  There also appear to have been problems or suspicions as to the position of those investments.  They said that there were occasions on which board meetings were held of which they were not given notice, and that decisions were taken in relation to KPI by Mr Cheng and directors associated with him without consultation with them.  Mr Cheung said, when giving evidence, that by the end of 1999 relations between himself and Mr Cheng were poor.

11.  As at the end of 1999 and beginning of 2000, Mr Cheung owned some 117 million shares in KPI, representing about 13.77% of its then issued share capital.  Mr Cheng and persons and companies associated with him owned some 48.16% between them, and a Mr Cheung Kung Tai, who was also a director of KPI owned some 5.58%.  The remaining 32.49% was held by the public.  Included among the public shareholding were some 10 million shares (or just under 1%) held by Samuel.

12.  So far as CASH is concerned, it is pertinent to note that Mr Kwan was the single largest shareholder in CASH, and was at the material times (and is) its chairman and chief executive officer.  The second largest shareholder in CASH at the material time was Mr Khoo Ken Wee (“Mr Khoo”), who was also an executive director of CASH.  He resigned from that position on 18 June 2002.  Mr Khoo had previously worked with Peregrine Captial Limited, during which time he was involved with the listing of KPI.  He met Mr Cheung and Samuel at that time, and thereafter remained in contact with Samuel, with whom he shared mutual friends.  Between them, Mr Kwan and Mr Khoo held in excess of 50% of the shares in CASH, although as a listed company, a substantial number of its shares were held by members of the public.  Apart from Mr Kwan and Mr Khoo, CASH had a number of other directors as well.

13.  On 30 December 1999, KPI requested the Stock Exchange to suspend trading in its shares.  The suspension was requested against the background of a sudden rise in its share price from around HK$0.60 (the price at which its shares had been traded for some weeks prior to that date) to HK$0.93 immediately prior to the suspension.  The rise occurred in the day or two before the suspension was requested.

14.  At that time, KPI was involved in negotiations with a company called Yorkshire Development Limited (“Yorkshire”) for the acquisition of a 12.86% interest in a Singapore company called Plexus Multimedia Pte Limited (“Plexus”), which was involved in the development of technology to be used in a digital multimedia broadcasting business initially in Singapore and later in other countries in Asia, Europe and Australasia.  The technology would enable digitised information to be sent over broadband radio, and was envisaged to be a means of providing wireless mobile data delivery.  At the same time, KPI was also involved in negotiations with CASH for the subscription by CASH for new shares to be issued by KPI, in order to enable it to finance its acquisition of the stake in Plexus, and to meet its share of the development costs associated with Plexus’ intended product.

15.  In the event, on 3 January 2000, KPI entered into agreements with Yorkshire for the acquisition of the interest in Plexus (“the acquisition agreement”), and with a subsidiary of CASH called Inner City Profits Limited (“Inner City”) for the subscription by Inner City for new KPI shares (“the subscription agreement”).  The price for the acquisition of the stake in Plexus was HK$300 million, to be settled as to HK$20 million in cash and as to HK$280 million by the issue of some 405.8 million new shares in KPI, thus valuing the KPI shares at HK$0.69 each.  For its part, Inner City was to acquire 400 million shares in KPI for HK$100 million, a price of HK$0.25 per share.  The acquisition agreement and subscription agreement were inter-conditional, in that each was conditional on the other becoming unconditional and not being otherwise terminated in accordance with its terms.  Other conditions of the subscription agreement included a condition that Inner City should be satisfied with the results of a due diligence exercise to be carried out in respect of the KPI group of companies, that neither Inner City nor Yorkshire should be required to make a general offer for the shares of KPI under the Hong Kong Code on Takeovers and Mergers, and that KPI’s shares should remain listed.

16.  As it turns out, neither the acquisition nor subscription agreements proceeded to completion.  Despite extensions of the dates by which the conditions to which those agreements should be fulfilled, the conditions remained unfulfilled, and the agreements lapsed.  However, had the agreements gone through, the result would have been that the shareholding structure of KPI would have changed, so that Mr Cheng and his associates would have held 24.71% of the enlarged share capital, Mr Cheung 7.06%, Mr Cheung Kung Tai 2.86% and the public 16.66%.  As a result of the shares which would have been issued to them, Yorkshire would have become a 24.53% shareholder of KPI and Inner City would have held 24.18% of KPI’s shares.

The approach to the witness evidence

17.  The sequence of events in the days leading up to and immediately following the making of the alleged agreement was the focus of much of the witness evidence at the trial.  The principal witnesses who gave evidence as to these matters for Mr Cheung were Mr Cheung himself and Samuel, and for CASH, Mr Kwan and Mr Khoo.  Their evidence was, as one might expect from the divergence in the parties’ respective cases, in sharp conflict.

18.  Both parties submitted that in these circumstances the appropriate course to follow would be to consider their respective accounts and test them against the inherent probabilities and commercial common sense and logic in order to decide which is the more credible.  I propose to do this, but at the same time, it is, I think, necessary to consider the credibility of the witnesses themselves, testing their evidence against previous statements which they have made, or in relation to which they must have given instructions.  Each of them made statements for the purpose of these proceedings.  Although at the trial each of these witnesses gave detailed evidence in chief, without reference to their statements (a course which was thought to be more appropriate than simply having the witnesses confirm their statements and be cross-examined on them, having regard to the importance that might be attached to their credibility), their statements were utilised in cross-examination, particularly with a view to demonstrating discrepancies that had arisen in their evidence.  In addition, in the very early stages of the dispute, each side had given an account of events to the Stock Exchange, in response to questions raised by the Stock Exchange when the dispute came to light shortly after Mr Cheung issued his writ in this action on 18 January 2000.

The witnesses

19.  So far as the principal witnesses are concerned, my assessment of them in general terms is as follows.

20.  Mr Cheung was over 70 years old at the time of trial.  He had a limited formal education, but clearly had been a successful businessman.  However, for reasons which will become apparent below, I have had serious reservations as to the reliability of the evidence which he gave at the trial.  There were numerous occasions when his evidence at the trial diverged markedly from the witness statement which he had made, and the instructions which he must have given to his then solicitors in January 2000 to enable them to reply to the Stock Exchange’s queries on his behalf.  Although Mr Westbrook S.C. submitted that for the most part, the differences were matters of detail, and could have been due to Mr Cheung’s lack of understanding of English coupled with misunderstandings between himself and his solicitors, it does not seem to me that the discrepancies to which I shall refer below can be so easily dismissed.

21.  Samuel gave a better account of himself while giving evidence.  However, there were certain aspects of his evidence, in particular in relation to a telephone conversation between himself and Mr Khoo on 12 January 2000, which I have had difficulty in accepting, and which have led me to have similar reservations as to the reliability of his evidence on the key events.

22.  So far as Mr Kwan and Mr Khoo were concerned, they were both obviously well educated and experienced businessmen.  Although their evidence at trial was not without blemishes, there being some points on which they contradicted each other, and also some matters in respect of which their evidence at trial differed from their statements or earlier correspondence between CASH’s solicitors and the Stock Exchange, I was of the view that the discrepancies were less serious than those in respect of Mr Cheung’s evidence.

23.  I would also say that my impressions of the witnesses were broadly confirmed by the other objective evidence and factors to which I shall refer below.

24.  Apart from the principal factual witnesses to whom I have referred above, factual evidence was also given for Mr Cheung by Mr Carmelo Lee, a partner at Messrs. Woo Kwan Lee and Lo, whom Mr Cheung consulted on the morning of 10 January 2000.  For CASH, evidence was also given by Miss Annie Chow, Mr Kwan’s secretary, who gave evidence as to the way in which the meeting between Mr Cheung and Mr Kwan in the late morning of 10 January 2000 was arranged, by Mr Benson Chan, a director of Celestial Capital Limited, a subsidiary of CASH which acted as the financial adviser to KPI in relation to the acquisition and subscription agreements, and who dealt with the Stock Exchange and the Securities and Futures Commission (“the SFC”) in relation to the drafting and clearing of an announcement made in respect of these transactions on 8 January 2000, and a Mr Danny Wong, an acquaintance of Mr Kwan and Mr Cheng who was said to be present at a number of meetings attended by Mr Cheung.

25.  I had no reason to doubt the evidence given by Mr Lee, Miss Chow or Mr Chan.  However, I did not find Mr Wong’s evidence at trial to be helpful, as he professed to have no recollection of the meetings which he was said to have attended.

26.  Finally, expert evidence was adduced by both parties.  The expert for Mr Cheung was Mr Derek Murphy, and the expert for CASH was Mr Arnold Ip.  They gave evidence as to the implications of the alleged transaction having regard to the Code on Takeovers and Mergers, and the Stock Exchange’s Listing Rules.  Mr Murphy also put forward what can best be described as a theory which he said might possibly explain why CASH (or Mr Kwan) might have been interested in buying Mr Cheung’s shares.

The making of the alleged agreement

27.  I turn now to examine the evidence as to the events leading up to and immediately after the making of the alleged agreement.

31 December 1999

28.  The first relevant events took place on 31 December 1999.  According to Mr Cheung, he noticed that morning that trading in KPI’s shares had been suspended and telephoned Mr Cheng to find out what the reason for this was.  Mr Cheung said in his evidence at trial that Mr Cheng was not forthcoming, saying only that there was a transaction in the pipeline, but that he was not prepared to say more about it because it was not yet confirmed.  Mr Cheung said that he then went over from his own office in Kowloon to Mr Cheng’s office in Hong Kong where he confronted Mr Cheng but was not told anything more, other than being told that Mr Cheng did not wish to say more about the matter for fear that Mr Cheung might leak information about the transaction.

29.  Mr Cheung’s version of events in his evidence at trial was very different from what he had said in his statement.  In his statement, he said that Mr Cheng gave him fairly full details of the then proposed subscription and acquisition agreements when they met at Mr Cheng’s office in the afternoon, and that Mr Cheung at that point objected to the issue of shares to Inner City at only HK$0.25, as the issue price was far too low (although this was not stated by Mr Cheung, this may have been on the basis that the last traded price of KPI shares prior to suspension was HK$0.93, and that the shares had traded at an average price of just over HK$0.60 in the month or so prior to the suspension of trading; the issue price was also just over a 50% discount to KPI’s adjusted audited consolidated net asset value per share of HK$0.51).  In his statement, Mr Cheung also indicated that he complained that he had not been given notice of any director’s meeting at which the proposed agreements were to be considered.

30.  When questioned about this, Mr Cheung maintained that what he had said at trial was accurate.  He said that he did not find out the details of the acquisition and subscription agreements until 8 January 2000, when a fax of the draft announcement which was to be published on 10 January 2000 was sent, apparently by the printer of the announcement, to his office in Kowloon, at which point (it being in English) the main features of the agreements were reported to him by his then secretary, a Ms Billie Chen.

31.  His explanation for the difference between this account and the version of events given in his statement was that he had told the solicitor who prepared his statement for him of the relevant events, explaining what happened on each day when relevant events occured, but may not have been clear as to the time during the day when various things happened.  He said that the solicitor who interpreted his statement to him did not interpret it to him word for word, but only explained the gist of his statement to him, so that he did not appreciate that there were inaccuracies.

32.  As to this, I would observe first that even on the basis of this explanation, it is difficult to see how, even assuming that Mr Cheung only told his solicitors of what happened on a particular day, without clearly indicating the time at which particular matters occurred, it is possible to account for the fact that Mr Cheung’s statement indicates that he learnt of the details of the transactions on 31 December 1999, whereas he now says that he knew nothing of them until 8 January 2000, more than a week later.  Further, the explanation given cannot account for the further discrepancy that although the statement indicates clearly that he challenged Mr Cheng both as to the merits of the transactions, and the failure to call a board meeting to consider them, his evidence at trial was that he never spoke to Mr Cheng about the transactions at all before he allegedly sold the 50 million shares to CASH.  Mr Cheung’s evidence at trial was that, having found out about the transaction on 8 January 2000, he tried unsuccessfully to call Mr Cheng to complain about it over the weekend, prior to the intended resumption of trading in KPI shares on 10 January 2000.

33.  Moreover, Mr Cheung had other opportunities between 31 December 1999 and 10 January 2000 to seek an explanation for the suspension of trading from Mr Cheng, most obviously on 3 January 2000, when he had a telephone conversation with Mr Cheng in the morning, and met him at the Grand Hyatt Hotel in the evening.  However, Mr Cheung said that he did not seek any explanation on either of those occasions.  This is particularly surprising, since given that it is his case that he was told that Mr Kwan was anxious to buy a substantial part of his shareholding in KPI, one would have thought that he would want to know what was going on before deciding how to respond.

34.  Further, I would have thought that where a witness statement indicates that it has been interpreted to the maker of it, the interpretation would be a detailed interpretation of the whole or substantially the whole of the statement.  I think that this is to be expected, given the importance of the statement as the maker’s evidence in chief (there was initially a direction that such statements should stand as evidence in chief unless otherwise directed, and in any event, at the time when the statement was made, it could not have been assumed that this would not prove to be the case).  Where it is sought to suggest that this was not done, as an explanation for significant discrepancies between the statement and the evidence eventually given by its maker, it is, I think, reasonable to expect that the solicitor responsible for the taking of the statement, or at least its interpretation, to be called to explain what has happened.  No such attempt was made here, and in the circumstances, it is clearly open to me to take this into account in deciding whether or not to accept Mr Cheung’s evidence at the trial.

35.  For all of these reasons, I do not regard Mr Cheung’s evidence at trial as to the events of 31 December 1999 as credible, and am inclined to think that the position was more likely to have been as he stated in his witness statement.

3 January 2000

36.  The next relevant events occurred on 3 January 2000.  Mr Cheung said at trial that Mr Cheng called him that morning and told him that someone (whom Mr Cheng did not name) was offering to buy 50 million shares in KPI from him at a price of HK$2.00 per share, and asked him to go to a meeting at the Grand Hyatt at 6:00 p.m. that evening.  Mr Cheung says that he went to the meeting out of curiosity, and that at the meeting, Mr Cheng told him that the buyer was Mr Kwan of CASH, that he wanted to buy 50 million shares and that if Mr Cheung accepted the offer, he should not sell the balance of his shares in the market for the time being.  Mr Kwan joined the meeting shortly afterwards, and was introduced to Mr Cheung.  When introducing Mr Kwan, Mr Cheung says that Mr Cheng (not Mr Kwan) repeated that Mr Kwan wanted to buy 50 million KPI shares at HK$2.00, at which point Mr Kwan suggested that HK$2.00 was too high a price.  Mr Cheung says that he made it clear that he was not interested in selling his shares at that time, not least because he (being a director of KPI) could not do so while trading was suspended.

37.  Mr Kwan’s version of events is rather different.  He says that he met Mr Cheng that morning in connection with the subscription and acquisition agreements, which were to be signed that evening, and that Mr Cheng mentioned to him that Mr Cheung wanted to sell some of his shareholding in KPI, and suggested that Mr Kwan might be able to help.  Thereafter, Mr Kwan says he happened to be at the Grand Hyatt with Danny Wong (whom he met fairly regularly, as Mr Wong was at that time a representative of a Japanese company which had a business relationship with CASH), and at the end of his meeting with Danny Wong, the latter saw Mr Cheng, Mr Cheung and a number of others at another table and went over to greet them.  Mr Kwan accompanied him, and was introduced to Mr Cheung.  Mr Kwan says that Mr Cheung told him that he knew about the subscription and acquisition agreements, and that he wanted to sell some of his shares, preferably at about HK$2.00, as his acquisition cost was some HK$1.50.  Mr Kwan said that it was not possible to do so at that point, since the KPI shares were still suspended from trading, and the transaction had not yet been announced.  It was therefore not possible to say what the market price was likely to be.

38.  In my view, Mr Kwan’s evidence is to be preferred.  I say this for a number of reasons:-

(1)	Mr Cheung’s evidence at trial again differed from the versions contained in his statement, and in his then solicitors’ letter to the Stock Exchange of 25 January 2000.  In his statement, he indicated that Mr Cheng told him in the morning who the intending buyer was, in contrast to his position at trial.  Both of these versions differed from the information given to the Stock Exchange, which was to the effect that Mr Cheng had informed him in the morning that Mr Kwan wanted to purchase 80 million shares (not 50 million) at HK$2.00 per share, but that Mr Cheung said that he was only willing to sell 50 million shares.  So far as the meeting at the Grand Hyatt is concerned, although Mr Cheung’s account at trial was in line with that in his statement, it differed from the version provided to the Stock Exchange, in that that version stated that there were negotiations as to the price, as Mr Kwan considered HK$2.00 to be too high, and that he needed to think about it further.  There is also no reference in that version to Mr Kwan being unwilling to sell his shares while they were suspended from trading because of his position as a director of KPI.  Having regard to these discrepancies, which cannot in my view be dismissed as minor inconsistencies, I have real doubts as to the accuracy of the evidence given by Mr Cheung.
(2)	It would be surprising, if Mr Kwan were making an offer to purchase part of Mr Cheung’s shareholding, for him not to have said so himself.  Yet even on Mr Cheung’s case, Mr Kwan did not make the offer himself.  All that he did was to suggest that a price of HK$2.00 was too high - a comment which does not sit well with his having offered to buy the shares at the very same price, but which fits rather better with Mr Cheung having indicated (as Mr Kwan says he did) that he wanted to sell his shares at HK$2.00 per share.
(3)	Further, it seems to me inherently unlikely that Mr Kwan would have offered to buy Mr Cheung’s shares at this point in time.  Quite apart from concerns as to the implications for the subscription agreement (to which I will refer below), it was Mr Kwan’s evidence that it would not have made sense for any offer to be made at this time, as the shares were suspended, and having regard to the subscription and acquisition agreements which were to be announced prior to the lifting of the suspension, it was not possible to predict the price at which the shares would open when trading resumed.  However, it was to be expected that when trading resumed, the share price would be volatile and subject to considerable fluctuation.  That this was to be expected was also the opinion of Mr Murphy, the expert witness for Mr Cheung.  That being so, I cannot see that it was either sensible or realistic to think that there would have been an offer to buy the shares at this stage, since there was no realistic basis on which even an approximate price could be put forward as being an appropriate price for such a transaction.
(4)	I also take into account the evidence of Mr Cheung and Samuel to the effect that relations between Mr Cheung and Mr Cheng were at a low ebb at this stage.  Given the difficulties in their relationship, it seems to me that there is force to CASH’s suggestion that Mr Cheung might well have been interested in selling some of his shares so as to gradually withdraw from KPI, over which he had by then lost control to Mr Cheng.
(5)	Further, having regard to my finding that it is likely that Mr Cheung knew by this stage of the proposed subscription and acquisition agreements, it seems to me that Mr Kwan’s description of the conversation at the Grand Hyatt, as consisting of discussion of the proposed agreements, and speculation that they would have a strongly positive impact on KPI’s share price, is entirely plausible.  This would also tend to support Mr Kwan’s case that it was Mr Cheung who put forward the price of HK$2.00, since this fits in with such speculation on Mr Cheung and Mr Cheng’s part.
(6)	Finally, it seems to me that the fact that Inner City was about to subscribe for 400 million shares in KPI at just HK$0.25 per share, a transaction which was subject to a number of conditions, not the least of which was a financial due diligence exercise on KPI by Inner City, is in itself a strong pointer against the likelihood of Mr Kwan having offered to acquire Mr Cheung’s shares at this (or indeed any subsequent) point in time.  A further indicator against such an offer having been made is Mr Kwan’s evidence (which I accept in this respect) was that CASH was only interested in investing in KPI as a means of acquiring an indirect investment in the Plexus technology, so that it was improbable that Mr Kwan would offer to buy part of Mr Cheung’s shareholding outright, at a substantially higher price, before the acquisition agreement had become unconditional.

39.  For all of these reasons, I am of the view that (whatever Mr Cheng may have said) Mr Kwan did not in fact offer to buy any part of Mr Cheung’s shareholding in KPI on 3 January 2000, and that it is more likely that it was Mr Cheung who expressed an interest in selling part of his shareholding at that stage.

40.  Although it was suggested for Mr Cheung that it was a suspicious coincidence that Mr Kwan should be in the Grand Hyatt, as Mr Cheng had said he would be, I do not see that this is the case.  Mr Kwan’s evidence, which I accept, was that he was a regular visitor at the Grand Hyatt at that time, as it was a popular meeting place for persons in the financial services industry at the time.  Similarly I do not think that the fact that Mr Kwan was introduced by Mr Cheng as someone who could help find a buyer is a matter that weighs against CASH’s case.  While Mr Cheung may well have had other brokers with whom he had worked in the past, and was not (on his own evidence) on good terms with Mr Cheng, this does not seem to have stopped him from pursuing what he perceived to be opportunities to sell his share to persons introduced by Mr Cheng.

7 January 2000

41.  Thereafter, there was a telephone conversation between Mr Cheung and Mr Kwan on 7 January 2000.  Mr Cheung says that Mr Kwan called him, asking him to sell 50 million of his shares at a price of HK$1.80.  Mr Cheung says he rejected this offer as well, pointing out that just a few days earlier, Mr Kwan had offered HK$2.00, and that in any event, the shares were still suspended from trading, so he could not sell them.  This version of events differs from that set out in his solicitors’ letter to the Stock Exchange of 25 January 2000, where it was said that Mr Cheung insisted on a price of at least HK$1.90 per share, but indicated (apparently for the first time) that he needed to check with his lawyers as to whether it was in order for him to deal in the shares while they were still suspended.  Mr Kwan agrees that there was a telephone conversation between himself and Mr Cheung, but says that he was calling in response to several messages which Mr Cheung had left.  Mr Kwan says that there was no discussion of any sale of Mr Cheung’s shares, and that Mr Cheung was simply anxious to know when the suspension of trading in KPI’s shares might be lifted.

42.  Apart from the reasons which I have mentioned in paragraph 38 above, which apply as much to this conversation as to the events of 3 January 2000, it seems to me unlikely that if Mr Kwan had offered HK$2.00 per share on 3 January, he would just four days later, when nothing had apparently changed (other than the fact that the agreements had by now been entered into), be offering a lower price for the shares.  I therefore prefer Mr Kwan’s version of events as to this conversation also.

8 January 2000

43.  On 8 January 2000, says Mr Cheung, he became aware for the first time of the details of the transactions, and of the impending lifting of the suspension of trading in KPI shares.  For the reasons which I have given in relation to the events of 31 December 1999, I do not accept that this was the first occasion on which Mr Cheung became aware of the details of these transactions.

10 January 2000 - Meeting at Woo Kwan Lee and Lo

44.  Then, on 10 January 2000, Mr Cheung attended a meeting with his legal adviser, Mr Carmelo Lee (“Mr Lee”).  He was accompanied by Samuel, Billie Chen and Mr Stephen Kwan, an independent non-executive director of KPI.  Mr Lee said, and I accept, that Mr Cheung sought his advice as to whether or not there was anything he could do to stop the resumption in trading of the KPI shares, or to prevent the subscription and acquisition agreements from going through.  Mr Lee advised him that there was nothing that could be done about the resumption of trading, and that the only thing that could be done about the agreements was to object to them and vote against them at the shareholders’ meeting that would have to be called to approve them.

45.  According to Mr Cheung, during this meeting, his secretary Billie Chen’s mobile phone rang.  She went out to take the call, and returned to tell him that Mr Kwan was looking for him.  As it was then about 9:30 a.m. and the market had not yet opened, Mr Cheung says that he did not return the call at once.  However, he did so after the market opened, at about 10:15.  He says that when he got through to Mr Kwan, he was told by Mr Kwan that KPI shares were trading at HK$1.85, and that he would offer Mr Cheung HK$1.90 for 50 million of his shares.  Mr Cheung says that he agreed, and that it was also agreed that a deposit of HK$15 million should be paid on 14 January 2000, with completion at the end of the month, when the shares would be delivered and the balance of the purchase price payable.  Although the impression is given in his statement that this was only an agreement in principle, which was not confirmed until a meeting later that morning at Mr Kwan’s office, at trial Mr Cheung maintained that a concluded agreement was reached during this telephone conversation.  He says that Mr Kwan asked him to come to his office later that morning to deal with the formalities, by which he understood that there might be an agreement to be signed, and he thought perhaps that he might receive a cheque for the deposit (although this was not due until the end of the week, Mr Cheung said he thought he might receive a post-dated cheque).

46.  There was some doubt as to the exact sequence of events, and the circumstances of this telephone conversation, even on the evidence of Mr Cheung and Samuel alone.  For example, Mr Cheung said on more than one occasion that his telephone call to Mr Kwan was made outside the meeting room, but on another occasion said that it was made in the room, with everyone present listening.  Samuel’s evidence as to this call was that he recollected Billie Chen having said at around 9:30 that Mr Kwan was trying to get hold of Mr Cheung.  He went on to say that after the market opened at 10:00 a.m., Mr Cheung told Billie Chen to call his office to check on the price of KPI shares, and was told that they were at HK$1.80 or HK$1.85.  Thereafter, Mr Cheung left the room to return Mr Kwan’s call.

47.  Both Mr Cheung and Samuel said that after the call, Mr Cheung returned to the room and announced to all present that he had sold 50 million shares in KPI to Mr Kwan at HK$1.90 per share.  Samuel says that both before and after the call, Mr Cheung asked Mr Lee whether it was in order for him to sell his shares now that trading in them had resumed.

48.  Mr Kwan’s evidence is that he did not speak to Mr Cheung at all.  He says that he was in meetings the whole morning, and that when he stepped out of one of the meetings briefly, his secretary, Miss Chow, told him that Mr Cheung’s secretary had telephoned and asked whether Mr Kwan could see Mr Cheung urgently that morning.  Mr Kwan says that he agreed to fit Mr Cheung in for half an hour before lunch.

49.  Ms Chow confirms Mr Kwan’s version of events.

50.  Mr Westbrook placed considerable weight on the evidence of Mr Lee.  In his statement, Mr Lee said that the Plaintiff mentioned in passing that someone had agreed to buy his shares in KPI.  In his evidence at trial, however, Mr Lee was much less positive about this.  He said that after Mr Cheung had explained the subscription and acquisition transactions to him, Mr Cheung told him that someone wanted to buy his (Mr Cheung’s) shares, or was interested in buying his shares.  He could not remember whether there were one or several telephone calls during the meeting, who made them, and whether they were made inside or outside the room.  He mentioned in his evidence in chief that the context in which the interest in buying Mr Cheung’s shares was mentioned was that Mr Cheung was unhappy about the agreements and was very fed up.  When asked whether Mr Cheung had said who was offering to buy his shares, Mr Lee said that he was not sure, that it might have been someone from CASH, or perhaps that it was someone from CASH arranging the sale.

51.  Mr Westbrook submitted that one thing that was clear from Mr Lee’s evidence was that what was being talked about was a sale of the shares and not a placement, and that Mr Cheung did not say that he was fed up, or wanted to sell or was going to get someone to sell his shares for him.  However, Mr Lee did say that the context in which the offer to buy Mr Cheung’s shares was mentioned was in the course of a discussion from which it appeared to Mr Lee that Mr Cheung was fed up, at least about the recent transactions.  Further, Mr Lee’s acceptance that it was possible that the sale was to be arranged through CASH indicates that it is at least possible that what was being considered was a placement or sale through CASH, rather than a sale to CASH or Mr Kwan.

52.  More importantly, Mr Lee was not able to say that Mr Cheung had in fact said that he had agreed to sell his shares to Mr Kwan of CASH, or that this was announced in the middle of the meeting.  It seems to me that in the context of a meeting where consideration was being given to steps that might be taken to prevent the resumption of trading in KPI shares, or to objecting to the subscription and acquisition transactions which had been announced, the fact that Mr Cheung had agreed to sell his shares to CASH (which was, through its subsidiary Inner City, interested in the subscription agreement) would be a matter that would make an impression, as it would be likely to render the discussions that had preceded it largely irrelevant.  In these circumstances, the fact that Mr Lee was unable to recollect any such statement being made by Mr Cheung, as Mr Cheung and Samuel say was made, casts real doubt on whether or not such a statement was in fact made, and thus on whether any agreement was reached over the telephone, as Mr Cheung says.

53.  Moreover, I note that neither Billie Chen nor Stephen Kwan were called to give evidence or asked to provide statements.  They clearly could have provided relevant evidence.  Both could have confirmed or refuted the suggestion that Mr Cheung announced to the meeting that he had sold his shares to CASH or Mr Kwan.  Billie Chen could, in addition, have given evidence as to the phone calls she made or received.  It seems to me that they were witnesses which could naturally have been called by Mr Cheung, and in circumstances where it must have been obvious that there would be an acute conflict of evidence, it is unfortunate that they were not called, and that statements were not obtained from them, and the failure to call them is a further factor which I am entitled to take into account in preferring Mr Kwan’s and Miss Chow’s evidence to that of Mr Cheung and Samuel.

54.  After the meeting with Mr Lee, Mr Cheung says that the whole group went to see Mr Charles Lee, a more senior member of Messrs Woo Kwan Lee and Lo.  Mr Cheung says that Mr Lee told Mr Charles Lee about the meeting, and that he told Mr Charles Lee about the sale of his shares to Mr Kwan or CASH.  Samuel gave similar evidence.  Mr Lee however, did not appear to recollect anything about this having happened, and certainly did not recollect Mr Cheung having informed Mr Charles Lee of the sale which Mr Cheung says was agreed over the phone.  Mr Charles Lee was not called to give evidence either, and in the circumstances, I do not attach any real weight to this incident as supporting Mr Cheung’s case.

10 January 2000 - Meeting at CASH’s offices

55.  Thereafter, there was a meeting between Mr Cheung, Samuel and Mr Kwan at Mr Kwan’s offices.  There is no doubt that this meeting occurred, and that it was in two parts.  The first part lasted some 28 minutes, and it was then followed by Mr Khoo being brought in by Mr Kwan, and joining the meeting for about a further 8 or 10 minutes.  Again, there is a marked difference in the parties’ versions of what happened.

56.  Mr Cheung says there was an exchange of pleasantries and small talk, after which he told Mr Kwan that he had come to complete the formalities of the sale.  Mr Kwan then asked whether the price could be reduced to HK$1.80, but Mr Cheung refused, whereupon Mr Kwan confirmed that he would buy the shares at HK$1.90.  In his evidence at trial, Mr Cheung also said that he told Mr Kwan that he could decline to buy the shares if he wished.  Mr Kwan then went out to fetch Mr Khoo so that Mr Khoo could prepare the documentation for the sale and purchase.  When Mr Khoo joined the meeting, Samuel told him the terms of the agreement, and Mr Khoo said that he would deal with the paperwork later.  On their way out of Mr Kwan’s office, Mr Cheung and Samuel were introduced to two representatives of Plexus, and Mr Kwan told one of them that he had just bought 50 million KPI shares from Mr Cheung.

57.  Samuel’s evidence broadly confirmed that given by Mr Cheung.

58.  Mr Kwan says that Mr Cheung first raised the subscription agreement, and said that CASH had gotten a very good deal.  Mr Kwan responded that CASH was only going to be an investor, and took some time to explain that it did not seek any influence over the management of KPI.  He says that Mr Cheung then raised the issue of finding a buyer for his shares again, and suggested a price of HK$2.00.  Mr Kwan says that he called up the KPI share price on a large (42 inch) monitor in his room, and that all present saw the current share price, which was around HK$1.50.  Mr Kwan says that he suggested that HK$2.00 was too high, and that it would be very difficult, or nearly impossible, to find buyers at that price, but that Mr Cheung simply said that he would settle for HK$1.90, and that he would like a deposit to be paid.  Although Mr Kwan says that he tried to explain that this would be difficult, and that it was not usual for deposits to be paid, Mr Cheung did not appear to be paying attention, and so rather than argue with him, Mr Kwan simply said that he would arrange for some documentation to be prepared.  Mr Kwan said that he had in mind a mandate letter and perhaps a draft placing agreement.  He says that after that, Samuel asked if Mr Khoo was in the office, and he went out to find him.  Mr Khoo then came in, and there was some reminiscing about the initial listing of Yiu Wing International, in which he had been involved.  Mr Kwan says he mentioned that he and Mr Cheung had been discussing a placement, at which point Mr Cheung suggested that Mr Khoo and Samuel should sort out the documentation.  The meeting then ended, and Mr Kwan showed Mr Cheung and Samuel out, introducing them to the Plexus representatives on the way out, although Mr Kwan says that there was no mention of any purchase of KPI shares.

59.  Mr Khoo’s evidence was that a placement was mentioned, and that he assumed that it had to do with the need to maintain a 25% public float in KPI’s shares.  He agreed that he was left to deal with the documentation, but said that he would have to check with Mr Kwan as to the details before he could do this (Mr Kwan, by contrast, said that Mr Khoo could deal with this largely on his own).

60.  It is right to note that there are discrepancies between Mr Kwan’s evidence at trial and his statement, and the letter sent by CASH’s solicitors to the Stock Exchange in answer to the latter’s queries about the alleged sale of Mr Cheung’s shares to CASH.  In particular, both in his statement and the letter, it was indicated that the share price of KPI at the time of the meeting was about HK$1.80, whereas it was in fact in the region of HK$1.50.  Further, in neither the statement nor the letter did Mr Kwan make it clear (as he did when giving evidence) that he was simply humouring Mr Cheung.  However, having regard to the conclusions which I have come as to the earlier events, I am of the view that these factors are not sufficient to lead to the conclusion that Mr Kwan would at this point have agreed to acquire Mr Cheung’s shares, in spite of my conclusion that he had not offered to buy them earlier, or agreed to buy them during a telephone conversation earlier that morning.  Further, apart from the factors mentioned in paragraph 38 above, there are a number of other factors which to my mind militate against an agreement for the sale of KPI shares, rather than an indication that CASH would (perhaps with no real enthusiasm) try to assist in finding a buyer for Mr Cheung.  These are:-

(1)	The fact that the share price was only HK$1.50 odd at the time of the meeting, when Mr Cheung (on his own case) offered Mr Kwan the opportunity to withdraw from the sale which Mr Cheung says had been agreed.  It seems to me most unlikely that no one at the meeting would have been interested in the share price of KPI shares, when they had just resumed trading.  It is far more likely that all three of the persons present at the first part of the meeting would have been highly interested in this, and I therefore think it more likely than not that the share price was looked at during the course of the meeting.
(2)	It seems to me that if Mr Khoo had been told by Samuel that there had been a sale of shares to CASH on the terms alleged by Mr Cheung, it would have been remarkable for him not to have reacted in some way.  He was, after all, a significant shareholder in CASH, and there was no evidence to suggest that Mr Kwan had discussed the possibility of an acquisition of an additional stake in KPI with either Mr Khoo or the CASH board.  The suggestion would therefore have come as a surprise to him.  Given the expected volatility of the share price on resumption of trading, it seems unlikely that Mr Khoo would have regarded the prospect of paying a substantial sum of money, at a much higher price than Inner City had been able to subscribe for KPI shares under the subscription agreement, with equanimity.
(3)	There was no evidence of any board meeting of CASH to discuss or consider such an acquisition.  Mr Khoo’s and Mr Kwan’s evidence as to the manner in which CASH was run was that it was run on lines that involved board meetings and discussion of major investments (which the alleged sale would have been, given the costs involved to CASH of some HK$95 million).  There is nothing to suggest that this was not the case, as one would expect it to be in relation to a publicly listed company run by professionals in the financial services field.  By contrast, there was a board meeting called prior to the entry into of the subscription agreement, for the purposes of which a scientific evaluation of the underlying technology of Plexus had been commissioned.  Board meetings were also held when extensions to the completion date of the subscription and acquisition agreements were considered, and when it was ultimately decided to let the agreements lapse.
(4)	The evidence of Mr Kwan, Mr Khoo and Mr Benson Chan was that it was also the case that throughout the process of the clearing of the 8 January 2000 announcement, the subscription and acquisition agreements, and their effect on the shareholdings in KPI, were being closely watched by both the Stock Exchange and the SFC.  Mr Kwan’s evidence, which was not challenged in this respect, was that he had attended a meeting with the authorities at which it was made clear to him that the transaction would be closely monitored.  Each of these witnesses said that they were concerned to avoid the possibility of having to make a general offer for the shares of KPI (which would have been beyond the financial capability of CASH).  In my view, it does not seem objectively very likely that a general offer would have been triggered by an additional acquisition of shares, when no general offer was required as a result of the subscription and acquisition agreements.  I tend to think that insofar as the authorities had concluded that Inner City and Yorkshire were not concert parties in entering into the agreements, the fact that a related company of one of them acquired additional shares would not be likely to change that conclusion.  Although there was evidence that the authorities were indicating that they would be regarded as concert parties after the transactions went through, this was a quite different matter.  That said, however, it seems to me that CASH and these witnesses should not be faulted for being cautious as to this aspect of the matter.
(5)	A different concern of the authorities, which was evident from the correspondence in relation to the clearing of the announcement, was that the transactions might amount to a backdoor listing.  Although it was common ground between Mr Chan and both experts that a backdoor listing involved a change in management control, it was Mr Chan and Mr Ip’s evidence that the practice of the Stock Exchange at the time was to use the yardstick of a change in the single largest shareholder as a basis for presuming that there might have been a change in management control, and thus a backdoor listing or reverse takeover of KPI (this is also demonstrated by the correspondence with the Stock Exchange leading up to the clearing of the announcement).  It was accepted by both experts (and asserted by Mr Kwan and Mr Benson Chan) that if the Stock Exchange had taken the view that as a result of CASH becoming the single largest shareholder (by the aggregation of Inner City’s shareholding and that allegedly acquired from Mr Cheung) there had been a reverse takeover of KPI, its shares would be suspended and it would be treated as a new listing applicant.  Having regard to the loss which it had sustained in the previous financial year, it would be unlikely to be able to recover its listed status, which would have obviously undesirable consequences for CASH, in that, even if it were as a result able to avoid having to complete the subscription agreement, it would find itself left with a significant stake in an unlisted company, without the benefit of the technology which was the driving force behind its investment, for which it had paid a very substantial sum of money.  Although Mr Murphy suggested that the approach of the Stock Exchange was not in fact correct, he accepted that their concerns had to be taken seriously, and that it would have been irresponsible for CASH to have ignored them.  Moreover, it is apparent from the reaction of the Stock Exchange to the issue of the writ in these proceedings that it was monitoring the position in relation to KPI closely, and was concerned about the possibility of a backdoor listing.  It therefore seems to me that this, too, is a factor that I can and should take into account, which militates against there having been any agreement along the lines alleged.
(6)	Finally, it is to be noted that Mr Cheung did not inform KPI’s board or the Stock Exchange of the alleged agreement within 5 days of its being made, as he was required to do pursuant to the Securities (Disclosure of Interests) Ordinance (Cap. 396).  This is in contrast with the fact that such disclosures were made by Mr Cheung in relation to his other dealings in the shares of KPI both before and after 10 January 2000.  Although Mr Cheung said that he was not aware that this was necessary where the transaction was not completed, it seems to me that this is nonetheless a factor (albeit far from the strongest one) which points away from there having been a binding agreement for sale of his shares as alleged.

61.  After the meeting on the morning of 10 January 2000, there were a number of further incidents which I will deal with briefly.

10 January 2000 - afternoon

62.  According to Samuel, Mr Khoo had promised to try to have documentation ready by the afternoon of 10 January 2000, when there was to be a press conference to announce the subscription and acquisition agreements.  However, Mr Khoo did not produce the agreements then, saying that he had not yet had time to do so.  Samuel says that he left the press conference with Mr Khoo and a mutual friend, and reminded Mr Khoo of the terms of the agreement once again.  Mr Khoo agrees that he had not produced the documents as he had indicated he would, but says that this was because he and Mr Kwan were busy, and could see no particular urgency to the matter, given that Mr Cheung was looking for a sale towards the end of the month, and the share price was not such as would make it likely that anything worthwhile could be achieved at that point.  At the end of the day, I do not think that a great deal turns on this particular incident.  However, for the reasons which I give below in relation to the telephone conversation between Mr Khoo and Samuel on the morning of 12 January 2000, I would not accept that the terms of the alleged agreement were mentioned by Samuel to Mr Khoo on the evening of 10 January 2000.

11 January 2000

63.  On 11 January 2000, it is common ground that Samuel and Mr Khoo spoke on the telephone, and that Samuel offered to have documentation drafted by Mr Cheung’s lawyers as Mr Khoo still had not done so.  Mr Khoo agrees that he went along with this suggestion.  He disagreed with Mr Westbrook’s suggestion that this would be unusual, in that CASH would not wish to contract on a client’s terms, rather than its own standard terms, saying that it did so in about 30% of the placements in which he had been involved.

64.  Thereafter, Samuel visited CASH’s offices in the afternoon, bringing with him a draft agreement for sale and purchase of 50 million KPI shares.  It was submitted that the fact that the agreement was for sale and purchase indicates that Mr Cheung and Samuel clearly had in mind that there had been a sale to CASH, rather than an agreement that CASH should assist in a placement of the shares.  However, the draft agreement, while showing Mr Cheung as the vendor, does not indicate the identity of the purchaser.  It appears to leave open the question of whether the purchaser was to be a company (as CASH of course was) or an individual.  This would appear to me to indicate that there was uncertainty as to the identity of the purchaser, a matter which is inconsistent with there having been a firm agreement for the sale of Mr Cheung’s shares to CASH.

65.  If instructions had been given to the solicitor drafting the agreement, a Ms Phyllis Cheng of Woo Kwan Lee and Lo, as to the identity of the purchaser, I can see no very good reason why this should not have been included in the drafts.

66.  Samuel said that it was his habit to leave out the name of the parties from draft agreements, for purposes of confidentiality.  This explanation is, with respect, unconvincing.  It does not explain why Mr Cheung’s name appears as vendor.  If confidentiality and the risk of accidental disclosure when documents were sent by fax or e-mail were truly a concern, I would have expected all parties’ names to be omitted.

67.  So far as the fact that the agreement is in form clearly an agreement for sale and purchase of shares is concerned, I do not think that this is unequivocal evidence that a sale and purchase had already been agreed with CASH.  It seems to me to be just as possible that, CASH having agreed to assist in finding a buyer for Mr Cheung’s shares, an agreement setting out the terms to which such a buyer would be asked to agree should be prepared with a view to being shown to the buyer.  I therefore do not think that the form of the draft agreements requires me to come to a different view, and conclude that there was in fact a binding agreement for the sale of Mr Cheung’s shares to CASH.

68.  Samuel’s account of his meeting on the afternoon of 11 January 2000 is that when he arrived at CASH’s offices, he asked Mr Khoo whether he had received an e-mail message from Mr Cheung’s solicitors, and that Mr Khoo said that he had, but had not opened it yet.  He said that Mr Khoo then went to fetch Mr Kwan, who came into the room and complained angrily that Mr Cheng had been selling KPI shares in the market, and that although CASH had bought many shares on the market, there were more shares available.  Mr Kwan then told Samuel that he would not be buying Mr Cheung’s shares, and having ascertained that Mr Kwan had no other explanation or apology to offer, Samuel left.

69.  Mr Kwan disagrees with this version of events.  He agrees that he was angry, but says that this was because he felt that Samuel and Mr Cheung were being unrealistic and annoying in thinking that a placement could be achieved in the current market conditions, and that he therefore made it clear that there was no prospect of a placement being done at HK$1.90 per share.  He did, however, acknowledge that Mr Khoo told him that Samuel had said he had a sale and purchase agreement to be filled in.

70.  Mr Khoo initially said that he did not know what documents Samuel had brought with him, but later accepted that he was told it was a sale and purchase agreement, which required the name of the buyer to be filled in.  Although initially he said that he did not think that Mr Kwan was angry, he later said that he might well have been.  However, he agreed with Mr Kwan’s version of what happened at the meeting.

71.  Having regard to the views to which I have come as to the making of the alleged agreement the previous day, I prefer Mr Kwan and Mr Khoo’s version of events in relation to this meeting to that of Samuel.

12 January 2000

72.  On 12 January 2000, Samuel says that he telephoned Mr Khoo to get his views on the matter.  He says that this was the first occasion on which Mr Khoo said that the arrangement was not a sale and purchase, but a placement.  Samuel agreed that if his evidence were correct, Mr Khoo could not possibly be telling the truth.  This conversation was not mentioned in Samuel’s statement, and he could give no explanation for it other than that he did not think it particularly important.  He also said that he did not report the conversation to Mr Cheung, as he considered it to be simply a conversation between friends.  He said that when correspondence was exchanged between solicitors the next day, CASH’s position had become clear, so that there was no need to raise this conversation with Mr Cheung or his solicitors thereafter.

73.  Mr Khoo agrees that there was a conversation with Samuel that morning, and that he told him that the arrangement was a placement.

74.  In my view, if this were truly the first time that Mr Khoo had said the agreement was for a placement, I would have expected Samuel to react differently, and to have informed Mr Cheung of the position.  On Mr Cheung’s case, Samuel had made the nature of the agreement clear to Mr Khoo on a number of previous occasions, and had not been given any indication that there was any misunderstanding.  To be told at this stage, after having been told the deal was off the previous day, that there had never been any sale and purchase, but merely a placement all along, was clearly something that he would be expected to have passed on to Mr Cheung, since it would indicate that CASH was intending to put forward a false case as to what had been agreed.  I therefore do not accept Samuel’s account as to this conversation.

Later events

75.  Also on 12 January 2000, Mr Cheung instructed his then solicitors to write to CASH, setting out the terms of the alleged agreement, and demanding performance of it.  Thereafter, Mr Cheung says he was telephoned by Mr Cheng the next day, scolding him for going to his solicitors, assuring him that Mr Kwan would purchase the 50 million shares, requesting him not to take legal action against Mr Kwan, and saying that the agreement would be signed on 17 January 2000.  He then met Mr Cheng at the Grand Hyatt, where Mr Cheng repeated what he had said on the phone.  On 17 January, Mr Cheung says he was contacted by Danny Wong who asked for a variation of the terms of the agreement, by providing for a longer settlement period and smaller deposit, to which Mr Cheung agreed.  He gave instructions for the draft sale and purchase agreement to be amended accordingly.  However, later that evening, Samuel informed him that an individual by the name of Mr Chan had come to sign the agreement, but had not brought the reduced deposit.  In consequence, no agreement was signed.  The next day, Mr Cheung issued his writ in this action.

76.  I do not think that much turns on these matters, having regard to the views which I have already expressed.

Why CASH might have entered into the alleged agreement

77.  Finally, no doubt recognising the importance of putting forward some reason why Mr Kwan or CASH might be prepared to enter into an agreement of the sort alleged in the face of the strong inherent probabilities to the contrary, Mr Cheung put forward two theories as to why Mr Kwan should have done so.  These were:-

(1)	In order to make a quick profit at a time when it might be possible to ride what was then perceived as a dot.com boom in the stock market, and perhaps corner the market in KPI shares, which had a limited free float of about 15%; or
(2)	To appease Mr Cheung so as to minimise the risk that he would try to disrupt the progress of the subscription and acquisition agreements.

78.  I do not think that either of these theories withstand scrutiny.

The quick profit scenario

79.  As to the first, this is based on the evidence of Mr Murphy, who suggested that where there is a limited free float in the shares of a listed company, in the order of 10-15%, there was a higher likelihood of rising prices and greater volatility, which provided the opportunity for profit by purchasing shares in the market.  As the public float in KPI shares was about 32%, 1% of which was held by Samuel, and 15% by clients of CASH, there was only a free float of 16%.  It is said that the experts accepted (as they did) that a quick sale followed by a resale would not be likely to concern either the Stock Exchange or the SFC and would therefore be independent of and would not affect the subscription and acquisition agreements.

80.  However, it is quite clear from Mr Murphy’s report that this notion was put forward as no more than a possibility, or a theory as to what might have been the motivation for a purchase of Mr Cheung’s shares.  In cross-examination, Mr Murphy accepted that this was no more than a possibility, and that the inference was not an easy one to draw.  With respect to Mr Murphy, it seems to me that this idea is no more than speculation on his part.  It has no evidential basis whatsoever, and I do not think that it can be given any real weight.

81.  Moreover, it seems to me that it would be quite wrong to assume (as this theory requires) that CASH would knowingly dissuade its clients from disposing of their shares in the market in order to provide itself with an opportunity to make a quick profit, on this basis, at their expense.

82.  Finally, the terms of the alleged agreement would appear to be inconsistent with this theory.  The agreement alleged provided for completion at the end of January.  This would mean that CASH would not be in a position to dispose of the shares before then, which would mean that it would not be in a position to take the hoped for profit until it might be too late, if the market were later to move against it.  Although Mr Westbrook suggested that the agreement was for delivery on or before 31 January 2000, this is inconsistent with Mr Cheung’s pleaded case, his witness statement and the overall tenor of his evidence at trial.

The appeasement of Mr Cheung scenario

83.  As for the second alternative, while the relationship between Mr Cheung and Mr Cheng was apparently strained, there was no evidence to suggest that Mr Kwan was aware of this.  That being so, it does not seem to me that there is any solid basis for this theory either.

Whether the alleged agreement was made with CASH

84.  I would just add that even if there had been an agreement between Mr Cheung and Mr Kwan along the lines alleged, I would have had serious doubts as to whether Mr Kwan was acting for CASH in making the agreement.  Although it is true that CASH had made it clear that it would not seek to argue that Mr Kwan did not have authority to enter into the alleged agreement on its behalf, I do not think that this detracts from the need for Mr Cheung to establish that Mr Kwan was or was purporting to act on behalf of CASH in entering into the alleged agreement.  CASH could only be bound by the agreement if Mr Kwan was purporting to act for it.  However, I see nothing in the evidence to indicate that Mr Kwan was purporting so to act.  Throughout his evidence, Mr Cheung did not once refer to Mr Kwan as having indicated that he was acting on behalf of CASH.  Rather, he referred consistently to Mr Kwan as “Mr Kwan of CASH”, a term which is equally consistent with Mr Kwan acting in his personal capacity, with “of CASH” being no more than an identifier.  I do not think that the attendance at CASH’s office, or the involvement of Mr Khoo is sufficient to tip the balance in favour of the proposition that Mr Kwan was acting on behalf of CASH or purporting to do so.  Nor do I think that it can be suggested that CASH have been misled into not suing Mr Kwan personally - although it is true that there was at one stage a proposal that Mr Kwan should be joined as a defendant in these proceedings, it is clear from the draft re-amendment by which this was to be achieved that the only claim sought to be made against him was for breach of warranty of authority in the event that CASH was able to establish that he did not have either actual or ostensible authority to act on its behalf, a case which was rendered unnecessary by the concession made by CASH.

Damages

85.  Finally, in the event that I had found CASH liable to Mr Cheung for breach of contract, I would have held that the correct measure of damages would have been the difference between the value of the KPI shares at the date of the contract and their value at the date for completion, 31 January 2000, at which date they were worth HK$0.69.  I do not think that the value as at 18 January 2000 would have been the appropriate value, as the letter relied upon as an acceptance of CASH’s repudiatory breach of the alleged contract was clearly withdrawn before it came to the attention of any person having the conduct of the matter for CASH, Mr Cheung’s solicitors having telephoned CASH’s solicitors and advised them that that letter had been sent in error before it was removed from the fax machine in CASH’s solicitors’ office and passed to the solicitor handling the matter for CASH.

Conclusion and costs

86.  Thus, for the reasons which I have given, I conclude that no agreement in the terms alleged was made between Mr Cheung and Mr Kwan, and Mr Cheung’s claim must accordingly be dismissed.  I shall make an order nisi that Mr Cheung is to pay CASH’s costs of these proceedings, to be taxed on a party and party basis.  Insofar as necessary, I shall also certify that the matter was fit for the instruction of two counsel.