AMERICAN ORIENT CAPITAL PARTNERS LTD v. GENERAL ENTERPRISE MANAGEMENT SERVICES LTD

HCA 4451/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4451 OF 2003

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J U D G M E N T

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I. Introduction

1.  The Plaintiff (AOCPL) is a wholly-owned subsidiary of American Orient Capital Partners Holdings Limited (AOCP Holdings).  Between 1988 and 2000 American International Group Inc. (AIG) held 60% of AOCP Holdings shares.  In December 2001 AIG reduced its interest in AOCP Holdings to 20%.

2.  AOCPL was previously known as AIA Capital Corporation Limited.  It changed its name to AOCPL in June 2002, following the partial divestment of AIG’s interest in AOCP Holdings.  In this Judgment, the abbreviation “AOCPL” will be used to refer to the Plaintiff before and after June 2002.

3.  Between 1988 and 2002 Mr. Jaime Gonzalez was AOCPL’s Managing Director and Chief Executive Officer.  Since 2002 Mr. Gonzalez has been AOCPL’s Chairman.

4.  The Defendant (GEMS) manages 2 investment funds, GEMS Oriental and General Fund Limited (Fund I) and GEMS Oriental and General Fund II Limited (Fund II). 

5.  Simon Murray & Associates Limited (SMA) is GEMS’ main shareholder.  SMA is also the principal interest behind Simon Murray & Co. Ltd. (SMC).  Mr. Simon Murray is SMA’s controlling shareholder.

6.  Mr. Gonzalez is adamant that on 28 July 2001 he and Mr. Murray (representing AOCPL and GEMS respectively) entered into a binding contract in Mr. Murray’s Dordogne home.  Mr. Gonzalez says that Mr. Murray orally agreed that, in return for AOCPL’s help in securing an investment by AIG in Funds II, GEMS would pay AOCPL a 2% placement fee on such amount as AIG might invest in Fund II.

7.  Mr. Murray is equally adamant that he never entered into any agreement with AOCPL.  Mr. Murray says that all that happened on 27 and 28 July 2001 at his home was that he and Mr. Gonzalez discussed a possible “package deal” whereby:-

(1) AOCPL would channel US$150 million of investment monies into Fund II;

(2) GEMS would pay a fee of 1% to AOCPL on such investment monies;

(3) GEMS would pay a “bonus” of somewhere between 1% and 2% (subject to further negotiation) on the US$25 million which Mr. Murray was then anticipating AIG would invest in Fund II, such US$25 million being treated as separate from the US$150 million which AOCPL was to introduce to Funds II;

(4) SMC would buy into AOCPL;

(5) AOCPL would buy into SMA; and,

(6) AOCPL would earn referral fees from GEMS.

8.  Mr. Murray contends that the components of the package were meant to form a single, non-severable agreement.  The elements of the deal (Mr. Murray says) were to be executed as a whole and were not to be treated as discrete individual contracts.  Mr. Murray stresses that many details of the package (including the precise percentage to be earned on AIG’s investment) remained to be worked out.  Mr. Murray denies that his discussions with Mr. Gonzalez in France ever matured into any binding contract.

9.  AIG eventually invested US$25 million into Fund II.  In consequence, AOCPL invoiced GEMS for US$500,000 (that is, 2% of US$25 million).  GEMS then having refused to pay, AOCPL has brought this action against GEMS for US$500,000.

10.  There are 3 questions for the Court to resolve.

11.  First, there is the issue whether Mr. Gonzalez or Mr. Murray is right on the existence of an agreement. 

12.  Second, there is the issue whether AOCPL has done its part of any bargain struck. 

13.  GEMS contends that, even if Mr. Gonzalez is right, AOCPL would still not be entitled to a fee.  This is because, on Mr. Gonzalez’ version of events, Mr. Murray promised to pay a 2% fee as a “quid pro quo” to AOCPL for helping to secure AIG’s investment into Fund II. 

14.  GEMS says that AIG invested US$25 million into Fund II without reference to anything said or done by AOCPL.  AOCPL (GEMS alleges) did nothing which actually caused or procured AIG to invest U$25 million into Fund II.  Thus, AOCPL did not (GEMS reasons) fulfil the condition which is alleged to entitle it to charge a fee.

15.  Third, there is the issue whether GEMS can lawfully pay AOCPL.

16.  GEMS says that a payment to AOCP would be illegal and so unenforceable.  This is because (according to GEMS) a payment will offend against Prevention of Bribery Ordinance (Cap. 201) (PBO) s.9(1).

II. Background

A. March to June 2001 -- GEMS approaches AIG -- Mr. Murray’s assessment of the likelihood of AIG investing in Fund II

17.  On 26 March 2001 Mr. Murray and Mr. Nick Powell (an executive director of SMC and Mr. Murray’s son-in-law) met Mr. Maurice Greenberg and Mr. Ed Matthews of AIG in New York.  Mr. Greenberg and Mr. Matthews, respectively Chairman and Vice-Chairman of AIG, said that AIG was interested in investing in Fund II.  As a result, in April 2001 Mr. Murray sent copies of the Private Placement Memorandum for Fund II to Mr. Greenberg and Mr. Matthews. 

18.  The first closing date for subscriptions to Fund II was 30 June 2001.  Fund II then had an intermediate closing date of 14 December 2001 and a final closing date of 30 June 2002.  After 30 June 2001 it was still possible to subscribe to Fund II.  But the managers of the fund might charge a premium on the initial subscription price.  After 30 June 2002, it would no longer be possible to subscribe to Fund II.

19.  In late May 2001 Mr. Murray and Mr. Powell met again with Mr. Matthews in New York.  Mr. Matthews said that, subject to “some limited legal due diligence,” AIG was prepared to invest US$25 million in Fund II.  The due diligence would be carried out by AIG Investment Corporation (Asia) Limited (AIG (Asia)), AIG’s Hong Kong affiliate.

20.  At the meeting, Mr. Matthews also referred to AIG’s other Hong Kong affiliate, AOCPL.  Mr. Matthews mentioned that AIG was reducing its interest in AOCPL to 20%.  He suggested that GEMS might be interested in contacting Mr. Gonzalez at AOCPL to explore business opportunities.

21.  In June 2001 GEMS followed up on Mr. Matthews’ suggestion by attempting to set up a meeting with Mr. Gonzalez and AOCPL urgently. 

22.  By an e-mail dated 6 June 2001, Mr. Murray wrote to Mr. Geoff Spender, GEMS’ Chief Executive Officer as follows:-

“Geoff

AIG gave ud the name of their man in Hong Kong and you were going to contact him..Have you done this ???This is TOP PRIORITY ..Nick and I have seen them twice in US..They are seeking input from their guy in Hongkong..I don’t want to lose them because we get a negative from Hong Kong...I think you should set up a meeting urgently with him..Take some of the team..Ithink both David V.O and Kevin know him..So do I but I have forgotten his name ..He is Philippine..Pl forward his name and telephone number by return..I will also call him..The 30th june approaches..  This is very URGENT

Simon”

23.  At trial, Mr. Murray said that he was under no great anxiety about AIG US$25 million.  He repeatedly said in evidence that he regarded the “limited legal due diligence” alluded to by Mr. Matthews as “a mere formality”. 

24.  Mr. Murray was aware that, because AIG (Asia) was involved with a competitor fund known as the AIG Asian Opportunity Fund (AOF), AIG (Asia)’s due diligence report on Fund II was likely to be negative.  But (according to Mr. Murray) this was not a source of concern.  Mr. Murray claimed to be confident that, whatever AIG (Asia) said, Mr. Matthews having indicated that AIG was prepared to invest US$25 million, AIG would eventually act as it had intimated.

25.  In my view, Mr. Murray’s supposed confidence is not borne out by his 6 June 2001 e-mail.  It is far more likely that, at the time, contrary to what he now says, Mr. Murray was anxious to secure AIG’s participation in Fund II.  He therefore urgently wanted to take all necessary steps to obtain the support of AIG’s Hong Kong affiliates (including AOCPL) for Fund II. 

26.  Mr. Murray may well have realised that AIG (Asia) would be negative about Fund II since it was similar to AOF.  If that was so, it became all the more important to Mr. Murray to acquire allies within the AIG camp (especially AOCPL) who might speak in favour of Fund II.  This might effectively counter any adverse findings in AIG (Asia)’s due diligence report.  Getting in touch with AOCPL was particularly vital, because Mr. Matthews (on whom along with Mr. Greenberg a final decision to invest in Funds II might depend) had suggested that GEMS might consider meeting Mr. Gonzalez.

27.  As Mr. Murray’s e-mail stressed to Mr. Spender, the first closing date of 30 June 2001 was looming.  It was imperative to meet with AOCPL as soon as possible to ensure that GEMS did not lose AIG’s US$25 million simply “because we get a negative from Hong Kong”.

B.    June to July 2001 -- GEMS meets AOCPL -- Mr. Gonzalez’ record of the 27 and 28 July 2001 meeting

28.  On 11 June 2001 Mr. Thomas Tang (Managing Director) and Mr. Stephen Lo (Senior Vice President) of AOCPL did meet with Mr. Spender, Mr. David Van Oppen and Mr. Kevin Yip of GEMS.   GEMS explained its objective of approaching AIG to invest in Fund II. The parties also discussed possible areas of future cooperation, including introduction of potential investors, arrangement of co-investment opportunities and referral of financial advisory transactions.

29.  On about 18 June 2001 Mr. Gonzalez (who had not been available earlier) met with Mr. Spender.  They covered much the same ground as had been discussed on 11 June.

30.  Then, on 9 July 2001 Mr. Gonzalez and Mr. Murray met at the Hong Kong Club.  The discussion was of a general nature.  Among other things, Mr. Murray noted the likelihood that the due diligence report would be critical of AIG’s participation in GEMS II.  On his part, Mr. Gonzalez talked about possible areas of co-operation and co-investment between AOCPL and GEMS.

31.  In fact AIG (Asia) had produced its due diligence report on 6 July 2001.  The latter recommended against AIG investing in Fund II.  It concluded:-

“Based on the above analysis with special emphasis on the overlapping mandate with existing AIG Funds in Asia, creating confusion and sending the wrong signal to the investment community and our existing investors, average portfolio returns with limited track record and the skewed economics of [Fund II], we recommend not to pursue this investment.  If the investment in [Fund II] is being considered as a channel for co-investment opportunities for AIG, this is probably an expensive means.  Any fund to be committed by AIG in [Fund II] can equally be used for potential commitment for AOF II.”

32.  However, when meeting Mr. Murray on 9 July, Mr. Gonzalez was unaware of the report and its recommendation.

33.  Mr. Gonzalez subsequently kept in contact with Mr. Murray. They discussed how AOCPL might assist GEMS to address the arguments against AIG’s participation in Fund II made in the due diligence report.

34.  On 27 and 28 July 2001 Mr. Gonzalez stayed with Mr. and Mrs. Murray at their home in the Dordogne in France.  Various facets of the proposed cooperation between GEMS and AOCPL were talked about.

35.  Mr. Gonzalez’ handwritten memo (taken while Mr. Murray was talking) of the matters discussed between the two on 27 July 2001 reads as follows:-

“DEAL @ SMA LEVEL

2* -- Get placement fee from AIG of other investors in Fund II (say 2%).

Buy into GEMS (valued @ $65 mm)

NO BRAINER→1*-- GM SMC to buy into AIACC [AOCPL]→10% to 20%.

4-- AIACC to buy into SMA ($80ML) ($65Ml) -- Sold 10% recently of SMA to controller of Tommy Hilfiger.

5*-- referral fee from GEMS

3 -- Give JCG [Mr. Gonzalez] seat in GEMS Board of Fund (not Fund Mgt Co)

-- Ivmt Committee

-- Mutual arrangement w/ AIACC Fund.”

36.  At trial Mr. Gonzalez was unable to recall the significance of the numbers which he wrote before the items set out in his memo.

37.  Mr. Gonzalez says that, at all times, the placement fee mentioned in item 2 of his memo was regarded as an independent matter from any possible future cooperation and co-investment between GEMS and AOCPL.  According to Mr. Gonzalez, it was understood between him and Mr. Murray that the placement fee was to be payable regardless of whether any other initiatives between the 2 companies materialised.  In the event that AIG did invest something in Funds II, the placement fee was to be a separate reward for helping to obtain such outcome.

38.  Mr. Gonzalez’s evidence is that on 27 July 2001 Mr. Murray proposed to pay a placement fee of “say 2%” of whatever AIG might invest.  Mr. Gonzalez responded to Mr. Murray by asking if he could think about the matter.  Mr. Gonzalez says that, having reflected overnight, on 28 July 2001 he told Mr. Murray that the offer of a 2% placement fee on AIG’s investment was accepted.  From that point on, Mr. Gonzalez contends (and Mr. Murray strongly denies) that a binding oral contract came into being between AOCPL and GEMS.

39.  On 29 July 2001 Mr. Gonzalez sent an e-mail to Mr. Murray which (according to Mr. Gonzalez) summarised the matters canvassed in the Dordogne.  The e-mail read (in part) as follows:-

“The following summarizes the various  points we discussed:

(1) SMC is prepared to invest in AIA Capital, taking up anywhere between 10% to 20% of its equity....

(2) AIA Capital will earn a placement fee of 2% for any funds that AIG, or any other investors introduced by AIA Capital, invests in the second fund of GEMS.  The size of this second fund is targeted at US$500 million.  You would like to see a participation of US$50 to $100 million from AIG.  I will actively assist you in pursuing AIG’s prospective participation in your Fund II.

(3) AIA Capital, as a completely separate exercise, will continue to raise its own fund.

(4) Subject to resolving any obvious conflict f interest issues, you are prepared to give me a seat in the Board of Funds II and its Investment Committee....

(5) Similarly to item 4 above and likewise subject to resolving any obvious conflict of interest issues, we would invite you to sit in the Board of the new AIA Capital Direct Investment Fund.

(6) You will give AIA Capital the option to buy into SMA (which owns 80% of GEMS, the fund management company of both Funds I and II and 100% of SMC) at the valuation of US$65 million.   This valuation is based on the price at which you sold 10% of SMA to the principal shareholder of Tommy Hilfiger....”

(7) You expect a close interaction between AIA Capital’s advisory business and the investors in SMA and the GEMS Fund I and II (as well as other businesses you are invested in or involved in, such as the Gleacher investment bank in New York).  This should result in advisory business for AIA Capital on one hand, and the referral of investment opportunities from AIA Capital to GEMS Fund II on the other hand.  You agree to pay AIA capital a referral fee for any investment that it refers to GEMS that it eventually invests in.

I trust that the above is an accurate and complete listing of the points we discussed.  As I mentioned to you, I would like to mull the above in my mind and to consult with my management team next week.  Suffice it to say, I am excited about the prospects of collaborating with you and your team.  In the meantime, I will be sending a memo to Ed Matthews regarding my thoughts on GEMS performance to date and my recommendation regarding AIG’s participation in your Fund II.  At the end of the day, however, it will require your face-to-face meeting with Hank Greenberg to close a deal with AIG.”

40.  Mr. Murray did not respond to the e-mail of 29 July 2001.

41.  Before leaving the e-mail of 29 July, it is convenient to make 3 observations about it here.

42.  First, as evidence that an agreement on a placement fee of 2% was struck in France, the e-mail on its own is ambiguous. 

43.  It is true that reference is made to earning 2% on AIG’s investment.  This contrasts with the less certain entry (“say 2%”) in Mr. Gonzalez’ memo of discussions on 27 July 2001. 

44.  The definitiveness of the reference to 2% in the 29 July e-mail seems to contradict Mr. Murray’s assertion that a final percentage was never agreed at any point between 27 and 28 July 2001.  If Mr. Gonzalez wrongly referred to 2%, one asks why Mr. Murray did not straightaway respond by e-mail to correct the mistake.

45.  But note that the 2% fee is only mentioned as the second of a number of several points of discussion.  One might have thought that, if there were a wholly separate contract on 2% as claimed by him, Mr. Gonzalez would have set that agreement apart from the other matters canvassed.

46.  Further, the e-mail records that Mr. Gonzalez wishes to “mull over” the points he has enumerated, including the 2% placement fee.  If there was already a binding agreement on the 2% placement fee in relation to AIG’s investment, there would be nothing more to “mull over” on item 2 of the e-mail.

47.  Second, it will be noticed that the elements which Mr. Murray says comprised the “package deal” being proposed by GEMS are, with one exception, similar (but not identical) to items 1 to 7 of the 29 July e-mail.  One glaring exception is the need to introduce US$150 of investment into Fund II.

48.  Mr. Murray says that, as far as he was concerned, bringing in US$150 million would have been an important pre-requisite to any deal whatsoever with AOCPL.  Mr. Gonzalez says that there never was any discussion of AOCPL introducing US$150 million.  According to Mr. Gonzalez, at most, as a completely separate matter from a 2% placement fee in relation to AIG, he talked with Mr. Murray about raising between US$100 million and US$125 million of investment for Fund II.

49.  Mr. Murray has suggested that the reference in the 29 July     e-mail to “participation of US$50 million to 100 million from AIG” is a garbled record of his insistence that AOCPL bring US$150 million into Fund II from other investors.  Mr. Murray says that he confidently expected AIG to invest US$25 million because he had been told that, subject to limited due diligence, AIG was going to do so.  It would be bad form for Mr. Murray to go back to AIG, whether by himself or through AOCPL, to ask for more money.  Therefore, Mr. Murray reasons the reference in the 29 July e-mail to a greater participation from AIG cannot have been accurate.

50.  I do not think that the precise figure discussed (whether US$125 million or US$150 million) will materially affect my conclusion on the 3 issues which I have to resolve.  Insofar as the precise figure discussed is in dispute, I am inclined to think that Mr. Gonzalez is probably right. 

51.  I do not believe that the reference to AIG’s greater participation was an erroneous transcription of what was discussed.

52.  I note that in his witness statement Mr. Murray is vague about the US$150 million investment.  He says (for example):-

“I believe, although I have no specific recollection of this, that I might have told Mr. Gonzalez during these discussions [in France on 27 July 2001] that I would give him a commission of 1% of the US$150 million, that he had told me that Sanwa and Electra would be willing to invest, if these funds were paid into the GEMS Fund II....”

53.  It seems that Mr. Murray’s suggestion of a garbled allusion is based on the mere coincidence that the amounts of US$50 million and US$100 million mentioned in connection with AIG’s enhanced participation add up to US$150 million.

54.  If AOCPL bringing in US$150 million had truly been a critical element of some “package deal” being broached by GEMS in France, I think that Mr. Murray would probably have replied immediately to the 29 July e-mail to point out that the US$150 million required from other investors had been omitted.

55.  Third, at the end of the e-mail, Mr. Gonzalez signals his intention to write to AIG in support of Fund II.  That (according to Mr. Gonzalez) is part of the bargain struck with Mr. Murray in France. AOCPL undertook (Mr. Gonzalez says) to advocate Fund II’s cause with AIG in return for a percentage of any AIG investment in Fund II which might materialise.

56.  In evidence, Mr. Murray queried whether GEMS had any need of AOCPL to convince AIG.  Mr. Murray pointed out that he had personal access to Mr. Greenberg and enjoyed a long-standing acquaintance with Mr. Cesar Zalamea (President and Chief Executive Officer of AIG (Asia).  Both individuals were senior to Mr. Gonzalez. 

57.  There was no need (Mr. Murray argued) to enlist Mr. Gonzalez to advocate GEMS’ cause, much less pay a fee to AOCPL as an incentive for doing what GEMS could perfectly well handle itself.

58.  I do not find Mr. Murray’s argument here compelling. 

59.  The 29 July 2001 e-mail itself recognises that at some stage there would need to be “face-to-face dealing” between Mr. Greenberg and Mr. Murray.  But this does not mean that Mr. Murray would have regarded Mr. Gonzalez’ support as of little utility.  As Mr. Murray’s 6 June 2001 e-mail plainly acknowledges, a positive word from Hong Kong (including Mr. Gonzalez) could well pave the way for a smoother dealing between (say) Mr. Murray and Mr. Greenberg.

C.      August 2001 to February 2002 -- Further exchanges among GEMS, AOCPL and AIG  -- Mr. Gonzalez’ reliance on certain e-mails

60.  On 17 August 2001 Mr. Gonzalez sent a 2-page fax to Mr. Matthews which argued that, contrary to AIG (Asia)’s due diligence report, AIG should invest in Fund II. 

61.  Among other things, Mr. Gonzalez stated:-

“Complementarity to AIGIC [AIG (Asia)].  One should look at Simon’s fund and network as complementary t that of AIGIC.  Investing in [Fund II] will allow AIG access to deals that it otherwise may not see, increasing the deal flow of AIGIC and vice versa.

The overlap in the investment mandate between AOF/JOP and the Funds should not be seen to be negative.  I do not think that an investment by AIG in [Fund II] should necessarily ‘cast doubts and confusion among the investment community and ... adversely jeopardise (our) franchise’, nor should it be ‘interpreted as an implicit admission on the part of AIG that GEMS can execute an AOF-style mandate more successfully’.  AIGIC should not feel so threatened and it must be more confident in its role as an important vehicle of AIG in the region.  This will be a relatively small investment by AIG as compared to the existing US$5.5 billion of assets under AIGIC’s performance.  If the funds under AIGIC’s management perform well, then these will not be major issues at all.  In any case, it is to AIG’s advantage (as well as that of AIGIC) that it invests in an independently managed fund that can provide AIG (apart from a superior return on its funds) a benchmark to compare the performance of AIGIC and a basis to review AIGIC’s strategy, policies and procedures to achieve the desired improvements.  All these should only lead to the strengthening of AIGIC as the primary direct investment fund management company of AIG in the region.”

62.  On some date before October 2001 (Mr. Gonzalez could not be more specific in evidence), Mr. Gonzalez followed up on his 17 August memo at a meeting with Mr. Matthews in New York.

63.  On 7 September 2001 Mr. Murray and Mr. Powell again met with Mr. Matthews in New York.  At that time AIG broke the “great news” that it would definitely invest in Fund II.  Mr. Murray wrote to Mr. Matthews on 26 September 2001 to thank AIG for supporting Fund II.

64.  Mr. Gonzalez met with Mr. Murray in Hong Kong on 22 and 24 September and 19 October 2001 and in London on 26 November 2001.  Among matters raised at those meetings was the possibility of Mr. Gonzalez persuading Sanwa Bank and Electra Partners to invest in Fund II.

65.  Mr. Gonzalez further says that during those meetings he mentioned the 2% placement fee to AOCPL for assisting in obtaining AIG’s investment in Fund II.  According to Mr. Gonzalez, in response Mr. Murray confirmed that the 2% fee would be payable as a separate matter from the proposed combination of the private equity businesses of AOCPL and GEMS.

66.  Mr. Murray, on the other hand, accepts that Mr. Gonzalez repeatedly raised the payment of a 2% fee to AOCPL in relation to AIG’s participation in Fund II.  Mr. Murray says that in fact he was getting sick and tired of Mr. Gonzalez’ constant reference to the 2%.  Mr. Murray denies, however, that he agreed or confirmed anything.  As far as he was concerned, Mr. Murray did not know what Mr. Gonzalez meant by a “separate matter” from talk about combining the businesses of GEMS and AOCPL.  To Mr. Murray’s mind, the parties were simply working at putting together a package deal.

67.  On 22 October 2001 Mr. Gonzalez sent a fax to Mr. Murray referring to various aspects of the proposed cooperation between AOCPL and GEMS.  The fax stated (among other things):-

“....  Also, AIG’s prospective participation in your fund will further support the continuing close relationship of AIG with the combined fund management business of AIA Capital and GEMS.  Based on your last conversation with Ed Matthews I understand that he has committed at least US$25 million.  I urge you to pin him down on this commitment soonest.”

68.  On 4 December 2001 Mr. Gonzalez sent another e-mail to Mr. Murray.  The e-mail read (in part):-

“As we discussed during our meeting in London last week, I would appreciate receiving from you your thoughts on the arrangement we can enter into if AIA Capital were to combine its proposed private equity business with that of GEMS.  As I mentioned to you, if we were to do so, we would not be looking at merely getting a placement fee on the P/E [private equity] funds we raise and combine with your GEMS II Fund (with the exception of AIG’s participation for which you have offer[e]d to pay us a fee of, I believe, 2%).  I am looking at our combining our efforts on the private equity investment quite positively, but I hope you understand that the deal must also make sense to us.

....

I think an AIA Capital/ SMA-SMC-GEMS combine could be quite a powerful force in the market.”

69.  Mr. Murray did not respond to the 4 December e-mail.

70.  Mr. Gonzalez relies on the 4 December e-mail and Mr. Murray’s failure to object to the 2% placement fee mentioned there as evidence in support of his case.  However, again the e-mail is on its own ambiguous.

71.  I do not think that much can be inferred from Mr. Murray’s failure to respond to the 4 December e-mail.  The e-mail refers to the “offer” of “a fee of, I believe, 2%”.  The e-mail does not explicitly say that there is a separate agreement to pay AOCPL 2%. 

72.  The lack of response to the e-mail does not necessarily invalidate GEMS’ case.  The document can be read as merely recording elements of a potential package deal with a different fee structure (involving a placement fee of (say) 2%) to govern investment by AIG.  If so, there might be no real need for Mr. Murray to respond while discussions on the future cooperation between AOCPL and GEMS were ongoing.

73.  Mr. Gonzalez met again with Mr. Murray on 17 December 2001.  After the meeting, Mr. Gonzalez sent an e-mail including the following:-

“I also brought up the following points during our discussion:

1.   We are in the final stage of discussing the terms of our investors’ participation in our fund.  As you suggested, I will talk to them about the idea of combining our fund with yours.  I am hopeful that this will be seen to be a positive development.

2.   Organizationally, when we combine our funds, it is important for us to transfer some of our people to your fund management company.  The most senior person that I would like to transfer is Thomas Tang (MD) and he would bring along with a couple of analysts.  I also expect to spend most of my time on the fund management side.  The total cost of the team that we would like to transfer is no more than US$1.0 million (and this compares favorably with the annual management fees on the funds that we will contribute).

3.   A very important consideration on our part is the working relationship between the advisory team of AIA Capital and the private equity team of GEMS.  There are significant synergies to be realized if we are able to get both sides of the business working closely and thinking of the benefits of referring investment opportunities on the one hand and prospective advisory mandates on the other hand to each other.  You assured me that this will not be a problem at all.

Finally, you confirmed that you will pay us a placement fee of 2% for AIG’s participation in your second fund.

Please let me know if you have any comments or changes to the points above.”

74.  Mr. Murray did not respond to the 18 December e-mail.

75.  Mr. Gonzalez relies on the 18 December e-mail and Mr. Murray’s silence in response to it as supportive of AOCPL’s case. But, for similar reason to that mentioned in relation to Mr. Gonzalez’ 4 December 2001 e-mail, it seems to me that little can be deduced from the failure to reply to the 18 December e-mail. 

76.  The 18 December e-mail can be read as merely confirming that a 2% placement fee for AIG’s investment had been agreed.  That would still be consistent with GEMS’ contention that the other elements of the package deal remained to be settled before any all-inclusive binding contract came into effect.

77.  In January 2002 AIG subscribed to 25,000,000 shares in Fund II at a total price of US$25.5 million.  The additional US$500,000 paid was the result of a premium having been imposed by GEMS, the initial closing date of June 2001 (and indeed the intermediate closing date of December 2001) having passed.

78.  On 7 February 2002 Mr. Spender urgently sent a fax to Mr. Murray, querying whether Mr. Gonzalez could bring significant investment into Fund II.  Mr. Spender wrote:-

“Before we get back to Jaime Gonzalez at AIA, there are some things we must discuss:

1. AIA are nowhere on raising the US$100M.  Sanwa has $8M and are trying to move to US$15M.  Electra have no funds available but are trying to access elsewhere.

2. Jaime has put the word out that six people will be joining GEMS.

3. AIA in Bangkok are awaiting a ‘decision’ from New York that would break up AIA.

4. WL/KY are very negative on Jaime’s reputation.  We all think similarly on Thomas Tang.

We have had a further five meetings with Jaime and Thomas Tang.  They were requesting highly detailed information -- personal bonuses, side letter agreements etc. etc.

I know we have to keep things moving along but the deal is that Jaime has to commit US$100M and then we talk structure.  Attending SMC Ltd. and O&G Board Lunch in Phuket is ok by me but certainly not the audit/valuation meeting for [Fund] I, II and GEMS Ltd.  Nor do I see any involvement on his part being necessary for SMA.

Overall I think we have divulged more than enough information for AIA to raise funds (and given AIG/AIA over 50 hours of meetings) and we should not go further until we something positive from their side.  It goes without saying that if networks he will be pretty busy for the rest of the time at Phuket.  This type of ‘corporate’ e-mail to you is I am afraid rather typical.”

79.  It will be seen that, whether or not Mr. Murray and Mr. Gonzalez had talked about AOCPL bringing in US$150 million into Fund II, GEMS was under no illusion by this stage that Mr. Gonzalez was only targeting to introduce US$100 million of investment.

80.  On 25 February 2002 Mr. Gonzalez met with Mr. Murray at the Ritz Carlton Hotel.  The parties have differing accounts of what transpired at the meeting. 

81.  Nonetheless, according to Mr. Gonzalez, AIG having actually invested US$25 million in Funds II, Mr. Murray said that it was now appropriate to invoice GEMS for the 2% placement.

D.      March 2002 onwards -- AOCPL invoices GEMS – GEMS seeks AIG’s clarification

82.  On 14 March 2002 AOCPL caused New Masters (Asia) Limited to invoice GEMS for US$400,000.  That amount was 1.6% of the US$25 million invested by AIG (exclusive of premium).  The sum was invoiced in error and should have read US$500,000.

83.  According to Mr. Gonzalez, the invoice was sent through New Masters because Mr. Spender had asked that GEMS be billed by a company other than AOCPL or AOCP Holdings.  New Masters is a BVI company owned by Mr. Gonzalez, Mr. Thomas Tang and Mr. George Filmeridis.

84.  Having received the invoice, Mr. Murray spoke to Mr. Spender.  Mr. Spender then called Mr. Thomas Tang to discuss the matter.  Mr. Spender recorded some of his conversation with Mr. Tang in a note on GEMS’ copy of the cover letter enclosing the invoice.

85.  Mr. Spender's note reads:-

“-- 1.6% is extremely high -- 'suggest partial payments'

huge effect on P/L [profit and loss]

-- Why to an AIG employee this is a breach of contract!”

86.  Mr. Spender says that he queried why a fee of 1.6% was being charged.  Although a 2% commission is common in the industry, GEMS’ practice until then had been never to pay more than 1%.  Mr. Tang apparently suggested in reply that the invoice could be met by partial payments.  Throughout the conversation, Mr. Spender says that he was asking himself why payment of commission was being made to “an AIG employee” as that could presumably entail a breach of the employee’s contract with AIG.

87.  On 11 April 2002 New Masters wrote to GEMS of the error in its invoice.  US$400,000 had wrongly been invoiced.  The amount ought to have been 2% of US$25 million or US$500,000.

88.  On the following day, Mr. Spender faxed Mr. Murray as follows:-

“• Simon, I met with Jaime Gonzalez and have commenced discussions with Hamilton on the Trust company proposal

• In relation to his fee.  He said that we had agreed 2%, he submitted an incorrect invoice for US$400,000 instead of US$500,000.  He has now re-submitted his invoice for US$500,000, i.e. 2% on US$25M for the commitment to date. Therefore he has not submitted anything for Sanwa yet.

I told him:

a) that I would have to discuss the 2% with you since this was not my understanding;

b) we would have to structure the payment anyway (leading to delays) because any commission would bear no relation to prior commitments to the fund;

c) we are still keen to see the US$100M+ materialize.

He will try to make an appointment to see you.  Perhaps it might be opportune to miss such an appointment on this occasion.”

89.  On 24 April 2002 Mr. Spender e-mailed Mr. Gonzalez as follows:-

“I took the opportunity to discuss with Simon the percentage he had discussed with you.  He confirmed to me that the figure for the 25M was 1% not 2%.  The 2% referred to additional sum of US$100M and its component parts.  I hope this provides the necessary clarification.”

90.  Mr. Gonzalez replied on the same day:-

“This unfortunately is not my recollection.

While it is true that Simon offered to pay a fee for the entire amount of funds I raise for your fund, this was an option that I rejected.  Instead, I said that I could raise US$100 to 125 million and we would merge this with the GEMS Fund II.  In exchange, we would be given a share of the management company (I asked a pro rate share while Simon said that it would have to be a discount from the pro rat number).

The situation with respect to AIG’s participation was always going to be treated differently.  Firstly, it would not be counted as part of the US$100 million plus that I raise and merge with GEMS Fund II.  From the very beginning (and this goes back to my meeting with Simon in his beautiful house in the Dordogne), it was very clear that we would be paid a 2% fee for this.  I recall that Simon reiterated this each time we met.  The quantum of the fee was never a function of the amount we raised for GEMS.  We would always be paid a 2% fee for the AIG participation and we would get a share of the management company upon the merger of our private equity funds assuming that we are able to raise a reasonable amount of funds, like US$100 million.

Please give me a call so that we can discuss this matter.  Exchanging emails for matters such as this is never satisfactory. I also would like to resolve this matter soonest and not leave it hanging.”

91.  On 17 September 2002 AOCPL received a “without prejudice” letter from Messrs. Slaughter and May (S & M).  The letter referred to S & M’s advice that, before paying any placement fee, GEMS should:-

“obtain written confirmation from AIG/Commerce and Industry (as principal) that, at all material times, New Masters had and continues to have the permission of AIG/Commerce and Industry (as principals), to accept, payment from GEMS of the Placement Fee”.

92.  S & M’s letter explained that without such confirmation, it believed that any payment might be in breach of PBO s.9(1).  There may be such a breach (S & M maintained) because AOCPL (as AIG’s agent) could be soliciting or accepting an advantage in the form of the placement fee from GEMS without the knowledge and approval of AIG (as AOCPL’s principal).

93.  S & M also enclosed a draft of the letter of inquiry which GEMS proposed to send to AIG.

94.  On 26 March 2003 Mr. Gonzalez sent an e-mail to Mr. Matthews to explain what had been happening in relation to the placement fee.  The e-mail stated (among other things):-

“At the suggestion of Cesar [Zalamea], I am writing you regarding a matter that arose in our Board meeting last month in connection with a receivable in our books of US$500,000 from [GEMS], the management company of [Fund II].

You will recall that in mid-2001 Simon Murray and I were talking about the possibility of collaborating in the two areas of activity, i.e., financial advisory services and private equity fund management....

As discussed, the sharing in the ownership of the combined management company between GEMS and AO Capital would be based on the respective contributions of commitments to the combined fund.  However, Simon made it clear to me that if he was successful in securing fund commitments from AIG, this would not be considered in determining AO Capital’s share since he had already started pursuing this matter with you, MRG [Mr. Greenberg], and Cesar even before he and I talked about the potential collaboration.  Nevertheless, as his discussions progressed (or for that matter did not progress) with AIG Simon asked for my help in shepherding his proposal along in exchange for which he offered to pay us a success fee of 2% of the amount of the commitment obtained from AIG (which fee he likewise agreed to pay for any other funds we were able to raise for [Fund II]).  In early 2002, Simon advised me that AIG agreed to invest US$25 million in [Fund Ii[ and he was extremely thankful for my assistance.  He agreed that we could send him the bill and accordingly, we sent GEMS (not [Fund II] in which AIG had agreed to invest) an invoice for US$500,000.

After following up the payment of the invoice for over 6 months, to our great surprise we received two letters from the solicitors of GEMS, [S & M], advising us that they would like to request AIG to sign a letter confirming it was aware of this fee and that AO Capital was authorized to receive the same.  [S & M] further stated that without this letter, the payment of the fee by GEMS could be in violation of the Hong Kong [PBO]....

....

This whole episode has been a big eye opener and disappointment for me.  Geoff Spender is clearly playing a game with us.  I certainly expected more from Simon Murray.  In any case, from our standpoint, there was an agreement with Simon Murray, services had been performed, and fees must be paid.

I thought I would bring this matter up to your attention in the event the request for the letter ends up on your desk.”

95.  On 23 May 2003 Mr. Spender on GEMS’ behalf wrote to Mr. Matthews as follows:-

“Please excuse the necessity for us to write to you but we need to clarify and finalize a matter in relation to Mr. jaime Gonzalez of [AOCPL] in Hong Kong and the investment of US$25,000,000 into [Fund II] by yourselves in January last year (the ‘investment’).

We have had discussions with [AOCPl], through [its] CEO], Jaime Gonzalez, in relation to the possible payment by GEMS of a placement fee to [AOCPL] in respect of the Investment.  Although no written agreement has been reached in respect of the fee, we have received an invoice in the amount of US$500,000 from [AOCPL].  As it is not clear to us whether [AOCPL] is a subsidiary of AIG, and may not have had lawful authority to receive any such fee, we are writing to you on the advice of our lawyers due to the implications of Hong Kong laws relating to the payment of incentives to agents.

To provide you with further detail, Mr. Gonzalez approached Simon Murray to see if GEMS Ltd. had an interest in investing in a new fund management and advisory company that AIA staffers were forming with, we were told, the backing of AIG.  Simon on behalf of GEMS declined this offer on the basis that it was in a competitive sphere and additionally because technically the GEMS funds are restricted in other types of fund investment.

To pursue a business relationship with Jaime Gonzalez offered to raise US$150M for [Fund II] -- we agreed to pay him a fee if this was achieved and accepted that the US$25M investment from AIG could form a constituent part of the total.  In the event no funds whatsoever were raised and the question of a fee should not have arisen.  However we have been pressed to pay US$500,000 in relation to the US$25M that had already been committed by yourselves.  To maintain good faith, we have considered the issue. However our lawyers are concerned that if we pay a placement fee to [AOCPL] without AIG’s express consent and without the recipient being lawfully authorized to receive it, GEMS, [AOCPL and its beneficial owners may be at risk of committing an offence under the Hong Kong [PBO].

Obviously, no such issue arose in our minds during initial discussions in relation to the placement fee as it was our understanding tha we were negotiating with a wholly-owned subsidiary of AIG which had lawful authority at all times.  In addition we expected Jaime Gonzalez to raise a further US$125M.  We also appreciate that payment of any such placement fee to [AOCPL] may raise separate questions for the AIG group and, perhaps of law other than Hong Kong law.

Before we decide whether to pay any such fee, I would be grateful if you could confirm that, at all material times, [AOCPL] had the appropriate lawful authority to enter into the arrangement to receive a placement fee and that you (as principals) consent to the payment by GEMS of a placement fee to [AOCPL] in respect of AIG’s US$25,000,000 investment in the Fund.

Grateful for your help in this matter.”

96.  By fax from Mr. Thomas Tang to Mr. Zalamea dated 7 August 2002, AOCPL suggested that Mr. Matthews AIG reply to GEMS’ letter along the following lines:-

“Dear Mr. Murray,

We refer to the outstanding invoice from [AOCPL] representing their placement fee in respect of AIG’s US$25 million investment in [Fund II].  We would like to confirm the following points to you:

·   AIG had no knowledge of the fee arrangement between GEMS and [AOCPL]’;

·   There was no need for AIG to know about this arrangement which was consistent with [AOCPL’s] previous practice and normal business activities; and

·   [AOCPL] had absolutely no influence over the decision of AIG to invest in [Fund II].

We hope that this fully clarifies our position regarding this matter and that you can come to an early settlement of this outstanding matter with [AOCPL].”

97.  On 15 August 2003, Mr. Zalamea on behalf of AIG wrote to Mr. Spender as follows:-

“Mr. Edward Matthews received your letter of May 23 in relation to Mr. Jaime Gonzalez of [AOCPL] in Hong Kong and an AIG Company’s investment into [Fund II].

Let me take this opportunity to clarify a few points:

1. [AOCPL] is not a subsidiary of [AIG].  ([AOCPL] is formerly known as AIA Capital Corporation which ceased to be a subsidiary of AIG as of December 1, 2002 although AIG holds a minority stake.

2. AIG has no knowledge about any fee arrangement between [AOCPL] and Simon Murray.

3. Our decision to invest $25 million in [Fund II] was not influenced by Mr. Gonzalez or [AOCPL].

4. There was no need for AIG to know about whatever fee arrangement there may have been between [AOCPL and Simon because earning fees for raising funds for different entities has always been part of the regular business of [AOCPL].

I trust that you and Mr. Gonzalez can work out any issue among yourselves.”

98.  On 27 August 2003 Mr. Matthews replied to Mr Spender in nearly identical terms to AOCPL’s draft letter faxed to Mr. Zalamea on 7 August and Mr. Zalamea’s own letter of 15 August.

III.  Discussion

A.  Issue 1: Whether agreement to pay 2% on AIG’s investment?

99.  In my judgment, there was an agreement between AOCPL and GEMS as Mr. Gonzalez maintains.

100.  Both Mr. Chua Guan Hock SC (for GEMS) and Mr. Russell Coleman (for AOCPL) have made submissions on the likelihood or otherwise of an agreement by reference to the conduct of the parties before and after 27 and 28 July 2001.

101.  To my mind, the circumstance which most clearly points to an agreement is the entire episode in 2003 whereby GEMS requested AIG to clarify that AOCPL could receive a 2% placement fee.  It is difficult to explain why GEMS should seek such clarification unless it believed (through Mr. Murray) that a contract along the lines urged by Mr. Gonzalez had actually been concluded. 

102.  Mr. Murray is an experienced and sophisticated businessman.  He is highly rational.  He will not act without good reason.

103.  If he truly thought that there was no agreement with AOCPL, why should GEMS have to bother AIG at all?  If he believed that there was no contract, he could simply have told AOCPL that GEMS was not paying because there was no obligation.  There would have been little point on this hypothesis to engage in an elaborate charade of making inquiries of AIG.  A peremptory refusal to pay on account of there being no contract would have sufficed.

104.  Seeking AIG’s blessing to a placement fee only makes sense if one supposes that GEMS (through Mr. Murray) believed that there was a contract, but was only uncertain whether it could lawfully discharge its agreed obligation.  Given GEMS’ version of what transpired in France, writing to AIG would have been wholly unnecessary and irrelevant.

105.  Obviously, a Court must be especially careful when drawing inferences from subsequent conduct.  Thus, for example, one can never construe a contract by reference to the parties’ later conduct.

106.  But here the question is not one of contractual construction.  It is a matter of deducing what actually happened from all the circumstances. 

107.  The question is whether GEMS’ conduct in writing to AIG in May 2003 is consistent with its present stance that Mr. Murray never concluded any agreement with Mr. Gonzalez.  My focus is on the evidentiary value of GEMS’ conduct in establishing the existence or non-existence of an agreement. For the reason I have given, I do not think that GEMS’ conduct of May 2003 is consistent with its case.

108.  In an effort to account for GEMS’ conduct, Mr. Chua submits that Mr. Murray may have wanted to enter into a commercial settlement with AOCPL.  For instance, Mr. Murray (it is suggested) may have been hoping that Mr. Gonzalez could still bring in at least US$100 million into Funds II.  On this footing, it would not have made business sense to antagonise AOCPL by outright rejecting its demand for a 2% placement fee.  The better course (so the reasoning goes) would have been to negotiate.

109.  There are unfortunately at least 3 difficulties with Mr. Chua’s suggestion.

110.  First, there is a problem of chronology. 

111.  AIG’s clarification was sought in 2003, long after subscriptions for Fund II had finally closed in June 2002.  By that closing date, ignoring AIG’s $25 million, Mr. Gonzalez had in fact brought nothing into Fund II.

112.  By May 2003 there was no longer any reason for Mr. Murray to play the “nice guy” in the hopes that something of the $100 million would materialise.  It was too late.  Under its own terms of operation, Fund II could no longer accept subscriptions.  If the object of approaching AIG was to buy time in the hope that Mr. Gonzalez might bring something into Fund II in the interval, the exercise was pointless.  The hope of further investment into Fund II would have been in vain and Mr. Murray would have fully realised that.

113.  Second, there is a problem of evidence.  Mr. Chua’s suggested rationale is not in fact that which Mr. Murray and Mr. Spender gave in Court when asked about the motivation behind writing to AIG in May 2003.

114.  Mr. Murray was asked at last twice to explain what the point of approaching AIG was.  Each time, his response was vague, to the point of avoiding the question.

115.  When first asked why, Mr. Murray responded that the May 2003 letter to AIG made it clear that there was no agreement.

116.  That being no answer, the question was repeated.  Mr. Murray then replied that Mr. Gonzalez was still pursuing the alleged agreement.  Mr. Murray said that the parties were heading towards “the legal direction”, letters being sent back and forth between them every day.  Mr. Murray himself consulted lawyers.  In his mind, he was debating whether he should give AOCPL something.

117.  Mr. Murray’s further reply to the question, while fuller, still strikes me as no answer.  How does going to S & M motivate bothering AIG about whether AOCPL had authority to receive a placement fee?

118.  If Mr. Murray was “debating” whether to give AOCPL something (despite AOCPL having done nothing concrete to advance Fund II in Mr. Murray’s eyes), it is far from evident why there would be any need to trouble his valued client AIG.  The most logical, typical and indeed simplest course of action would have been to write AOCPL, denying any agreement but offering to compromise at some (say) nominal amount without prejudice.

119.  Mr. Murray accepted that such might have been the logical course.  But all he could really say was that was not the course he opted to take.  Mr. Murray could articulate no convincing explanation for the 2003 approach to AIG.

120.  Mr. Spender’s examination took the matter no further.  Asked the same query as that put to Mr. Murray, Mr. Spender answered with a non sequitur. 

121.  Mr. Spender replied that GEMS had handed the matter to S & M when it became clear that there was no meeting of the minds.  It was thought (Mr. Spender said) that any payment would contravene the PBO, so GEMS wrote to AIG in New York.  Of Mr. Spender’s answer, one asks rhetorically: “But what for?  If there was really no contract, why not just say so?”

122.  Third, the 2003 AIG incident should not be viewed in isolation.  I have been at pains throughout the “Background” section of this Judgment to say that little can be deduced from Mr. Murray’s silence in response to individual e-mails sent by Mr. Gonzalez referring to the 2% placement fee.  But at some stage the Court needs to step back and regard the weight of the evidence in its totality.  One must survey the woods, and not simply examine the individual trees comprising it.

123.  It seems to me that, considered cumulatively, the evidence (especially in light of the 2003 AIG incident) leads to the conclusion that on the balance of probability a bargain was struck in France.  The agreement that was reached was that, regardless of whether GEMS and AOCPL cooperated in future ventures, AOCPL would help GEMS to secure AIG’s investment into Fund II in consideration for a commission of 2% on the amount actually invested by AIG.

124.  I add that, to the extent that there has been conflict between the evidence of Mr. Murray and Mr. Gonzalez, I have felt that Mr. Gonzalez’ version is likely to be the more reliable. 

125.  Mr. Gonzalez’ evidence strikes me as having been more consistent with contemporaneous documentation.

126.  Mr. Murray’s evidence on the other hand has varied over time.  His witness statement conveyed the impression that he could not remember much of his encounters with Mr. Gonzalez.  On the other hand, at trial, he seemed to recall more (such as the elements of the package deal which he says were discussed in France) than his witness statement suggested he could remember.

127.  Unfortunately, Mr. Murray’s evidence at trial on the alleged package deal, a key plank of GEMS’ case, was inconsistent with his witness statement and GEMS’ own documents.

128.  For instance, in his 24 April 2002 e-mail to Mr. Gonzalez, Mr. Spender stated that, according to Mr. Murray, there was an agreement that a fee of 2% was payable on funds from outside investors (excluding AIG) brought in by AOCPL.  In his witness statement, Mr. Murray says that he “might have told” Mr. Gonzalez that a commission of 1% would be payable. 

129.  Take another example.  Mr. Murray stressed at trial that he had discussed a package deal with Mr. Gonzalez.  This meant that, until every component of the package was agreed, there was no deal.  In contrast, GEMS’ May 2003 letter to AIG apparently treats the fee payable on funds raised from outside investors (apart from AIG) as having been separately agreed with AOCPL, irrespective of any package.

130.  In view of such contradictions on important points of detail, I regret that I am unable to accept Mr. Murray’s evidence as reliable.

B.  Issue 2: Whether AOCPL performed agreement?

131.  In my judgment, AOCPL performed its part of the bargain. 

132.  Mr. Gonzalez on behalf of AOCPL assisted GEMS by writing in to Mr. Matthews in support of Fund II on 17 August 2001.  Mr. Gonzalez later followed this up in meeting with Mr. Matthews.

133.  It was not a condition of the agreement that the placement fee would be payable if AOCPL was the effective cause of AIG’s investment.  Nor was it a pre-requisite of payment that AOCPL prove that it had in some way, major or minor, caused or procured AIG’s investment.  The term of the agreement was merely that AOCPL help out.  That AOCPL did.

134.  Mr. Chua argues that AOCPL could not have been the effective cause, or even any cause, of AIG’s investment of US$25 million.  This is because (Mr. Chua says), by the time of the July 2001 meeting in France, AIG’s investment was practically certain.

135.  In the “Background” section of this Judgment, I have queried whether, prior to September 2001, Mr. Murray could have been as confident as he now claims that AIG would be investing in Fund II.  As I have already pointed out, the evidence is against Mr. Murray on this point.

136.  I also accept Mr. Coleman’s submission that, however much GEMS now claims that the due diligence mentioned by AIG was a “mere formality,” it obviously could not have been so in reality. 

137.  AIG’s investment into Fund II would have been monies in respect of which AIG owed fiduciary duties to its clients.  AIG could not have committed such monies on a mere wink and a nod.  AIG was duty-bound to take reasonable steps to ascertain that Fund II was a suitable, cost-effective vehicle for its clients’ monies. 

138.  It would be surprising and unthinkable that Mr. Greenberg and Mr. Matthews (however senior their position within AIG) could, without more, just ignore a negative report on Fund II from an AIG-affiliated company.  There would be a need to persuade AIG with cogent reason to act differently from the recommendation of its affiliate.  For this reason in my view, in June and July 2001 GEMS most likely regarded Mr. Gonzalez’ support as instrumental in the campaign to persuade AIG.

139.  Mr. Chua refers to AIG’s 15 August 2003 response to the May 2003 letter.  That states that AOCPL had “no influence” on AIG’s investment to invest.  This shows (Mr. Chua submits) that AOCPL did not fulfil the agreed requirement.

140.  Strictly, on a proper analysis of the agreement, AIG’s statement, even if read at face value, would be irrelevant.  The contract was that AOCPL should assist GEMS to secure AIG’s investment.  AOCPL did help out.  The precise chain of causation leading to AIG’s investment is immaterial.

141.  But even AIG’s response cannot be taken at face value.  We have seen how its terms were in effect largely drafted by AOCPL itself.  Mr. Gonzalez has given evidence that, by the expression “no influence,” AOCPL meant “no improper influence”. 

142.  In all probability, AIG merely copied out what had been drafted for it by AOCPL, without focusing on the niceties in meaning of the expression “no influence”.  I accordingly cannot infer anything in support of Mr. Chua’s submission from AIG’s 15 August 2003 letter.

C. Issue 3: Whether payment prohibited by PBO s.9(1)?

143.  PBO s.9(1) stipulates:-

“Any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for or otherwise on account of his:-

(a) doing or forbearing to do, or having done or forbore to do, any act in relation to his principal’s affairs or business, or

(b) showing or forbearing to show, or having shown or forborne to show, favour, or disfavour to any person in relation to his principal’s affairs or business,

shall be guilty of an offence.”

144.  In the course of closing submissions, Mr. Chua fairly conceded that, in light of both August 2003 letters from AIG, it must be presumed that AOCPL could negotiate (and be paid) the placement fee on its own behalf.

145.  With the concession, Issue 3 falls away.  Given AIG’s August 2003 letters, AOCPL (if it was an agent of AIG) plainly has AIG’s authority to receive the placement fee.

146.  I stress the words “if it was an agent of AIG” in the previous paragraph.  As far as I can see, GEMS has in fact raised no sound basis for its assertion that AOCPL was an agent of AIG.

147.  GEMS apparently assumes that AOCPL was AIG’s agent because at one time AIG held a 60% interest in AOCPL through AOCP Holdings.  But it does not follow in law that simply because X Company is a majority beneficial interest in Y Company, Y is an agent of X.  GEMS must adduce other facts and matters to establish the alleged agency.  GEMS has not done this.

148.  There is no substance in the objection to payment based on PBO s.9(1).

IV.     Conclusion

149.  AOCPL succeeds on all 3 issues. 

150.  There will be an Order that GEMS shall pay AOCPL the sum of US$500,000. 

151.  Interest is to run on that amount at 1% over US$ prime from 12 April 2002 (that is, from the day following the date of the letter formally revising New Master’s invoice from US$400,000 to US$500,000) until date of judgment.  Thereafter, interest is to run on the judgment sum at the judgment rate.

152.  There will be an Order Nisi that GEMS shall pay AOCPL’s costs, such costs to be taxed if not agreed.