YAM CHI MING STEPHEN v. MAO TAI FONG GEORGE

cacv 351/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 351 of 2005

(on appeal from HCA NO. 1434 of 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Gill given on 23 September 2005.  The action before the judge was for a declaration that the plaintiff had validly rescinded 2 contracts which the plaintiff claimed he had been induced to enter into by reason of undue influence by the defendant and upon misrepresentations.  The plaintiff claimed the return of something over $4.5 million and in the alternative damages.  The judge held that there had been no undue influence and that although a misrepresentation had been made the plaintiff had not been induced to enter into the contracts in reliance on that misrepresentation and hence the claim failed.

2.  The plaintiff did not appeal the finding in respect of undue influence but confined the appeal to the question as to whether the judge was correct in finding that the plaintiff had not relied upon the misrepresentation.  This court dismissed the appeal at the conclusion of the hearing with reasons to be given in writing.

Background

3.  The plaintiff is a barrister and in paragraph 5 of the judgment, the judge set out his qualifications and experience.  He described the plaintiff’s curriculum vitae as being “interesting and varied”.  Amongst other things the plaintiff has taught in universities both in Canada and in Hong Kong for a considerable time in business and accounting related subjects.  He is also a qualified accountant in Texas as well as having his legal qualifications.  The plaintiff has also written a series of books the titles of which indicate that the plaintiff is in a position to offer advice to those who are considering financial investments.

4.  The plaintiff became acquainted with the defendant towards the end of 2000.  In the course of that acquaintance the defendant introduced the plaintiff to a number of investments which, apparently, produced a significant return for the plaintiff.  Towards the end of 2002 the defendant approached the plaintiff with a suggestion that he might buy an interest in a company concerned with the provision of services to mortgage providers.  The company, Integral Mortgage Corporation Pty Ltd (“IMC”) was an Australian company.  The original suggestion was that there would be a public flotation of the business which would reap substantial profits to the original investors.

5.  In December 2002 the plaintiff paid $3.25 million for a 40% interest in a company by the name of Ultrawealth Management Ltd (“UML”).  That interest represented an 8% interest in IMC.  The judge found that at the time the plaintiff was given the accounts for the years ending June 2001 and 2002.  Those accounts would appear to be rudimentary.  Nevertheless the accounts for the year to June 2001 showed a very substantial loss.  The accounts for the year to June 2002 showed a very modest profit but, as the judge noted, that was because there had been a capital transaction.  After making the initial investment the plaintiff went to Sydney and met the staff of IMC and, as the judge found, made himself familiar with the mechanics of its operation.

6.  In May 2003 the plaintiff purchased another 10% of UML from the defendant for $700,000.  He thus had a 10% share in IMC.  Thereafter in February and June 2003 and February 2004 the plaintiff paid money to IMC in respect of listing and operating expenses.  Eventually 2004 it became clear that the proposed listing of IMC would not take place.

7.  As already indicated the judge found that there had been a misrepresentation.  That misrepresentation was that the shares which the plaintiff bought were held by the defendant, not in his own right, but in trust for an undischarged bankrupt namely James Lee.  Despite the defendant’s protestations to the contrary the judge held in paragraph 26 of his judgment that he was satisfied that the plaintiff had been told that the shares belonged to James Lee with the intention to deceive him.  In paragraph 29 he said that he was satisfied that this was done for the purpose of inducing the plaintiff to buy the shares.

8.  The judge then went on to consider the question as to whether the plaintiff did buy the shares because of that inducement.  After observing that the plaintiff made no inquiries about James Lee and, indeed, observing that the plaintiff might have put himself in some difficulty if he had made too many inquiries about buying shares which belonged to an undischarged bankrupt, the judge observed in paragraph 29:

“The plaintiff as I have found went to lengthy steps before deciding that the investment was for him.  I am satisfied that he was not induced to purchase the shares in reliance on their belonging to James Lee.  And there is no other fraudulent misrepresentation made out.”

9.  The appeal against that finding of fact was based on the proposition encapsulated in the statement made by Morritt LJ in the case of Barton and others v County Nat West Ltd [1999] All ER (D) 782 at paragraph 54 where the judge said:

“The second submission arises from the presumption that if the false statement is of such a nature that it would be likely to play a part in the decision of any reasonable person it will be presumed that it did unless the representor satisfies the court to the contrary.”

10.  But as Morritt LJ went on to say in paragraphs 58 onwards the presumption is one of fact and capable, like any other such presumption, of being rebutted.  In my view the judge was amply justified in taking the view which he did.  He examined the facts and the circumstances of the parties in detail and in particular he considered the evidence given by the parties and, it would be noted, did not accept everything that the defendant said.  Nevertheless, he came to the conclusion that the plaintiff had not relied upon the representation when he was considering making the investment in a company which he knew well was making a loss but hoped to gain from its eventual flotation on the stock market.  That flotation never took place.  In the light of those facts it would seem that the major argument put forward on this appeal that the plaintiff thought he would be getting a bargain price by buying from a bankrupt is beside the point.  On the judge’s finding the plaintiff’s intent was to make a handsome profit on listing and that never happened.  I see no basis for interfering with the judge’s finding of fact.  For that reason I considered that this appeal fell to be dismissed.

Hon Le Pichon JA:

11.  I agree.

Hon Chu J:

12.  I agree.