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Aachen (Asia Pacific) Consultants Ltd v Khoo Ee Liam

Judgment Cited authorities 9 Cited in Precedent Map Related
Vincent
Judgment Date25 September 2012
Year2012
Judgement NumberHCA4354/2003
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA4354D/2003 AACHEN (ASIA PACIFIC) CONSULTANTS LTD v. KHOO EE LIAM

HCA 4354/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4354 OF 2003

____________

BETWEEN
AACHEN (ASIA PACIFIC) CONSULTANTS LIMITED Plaintiff

and
KHOO EE LIAM Defendant
____________
Before: Deputy High Court Judge Mimmie Chan in Court
Dates of Hearing:
Date of Judgment: 		18-20, 23-27 April, 2-4, 7 May, 25-29 June and 3 July 2012
25 September 2012

_____________________

J U D G M E N T

_____________________

Background

1. The plaintiff was a company in Hong Kong which carried on business of providing services in corporate finance, acquisition, investment and general business consultancy. Andrew A Chen (“Chen”) was described as a director of the plaintiff. In November 2003, the plaintiff commenced proceedings against the defendant for recovery of a sum of A$4,322,468.30, claimed to be the outstanding balance of a consultancy fee (“Fee”) payable by the defendant to the plaintiff under a Mandate Agreement in writing dated 5 December 1997 (“Mandate Agreement”).

2. The Mandate Agreement provides that in consideration of the services to be rendered by the plaintiff for, inter alia, sourcing an Australian listed company for the defendant’s acquisition, the defendant would pay to the plaintiff the Fee of 10% of the net tangible assets of the listed company.

3. By way of defence, the defendant claims that:

(1) the plaintiff has failed to prove its entitlement to the sum of A$4,322,468.30 which it claims as the Fee due under the Mandate Agreement ;

(2) the plaintiff and/or Chen at all material times carried on the business of advising the defendant concerning securities, but neither the plaintiff nor Chen was registered as an investment adviser or investment representative, as required under sections 49 and 50 of the Securities Ordinance, Cap 333 (“Ordinance”), since repealed and replaced by the Securities and Futures Ordinance, Cap 571;

(3) the plaintiff at all material times acted as the defendant’s investment adviser, and under section 143(1)(b) and (3) of the Ordinance, the plaintiff was prohibited from entering into and performing the Mandate Agreement as an investment advisory contract within the meaning of the Ordinance;

(4) the Mandate Agreement was induced by misrepresentations that Chen was a director of the plaintiff, when he was not;

(5) Chen had failed to disclose to the defendant that he was an undischarged bankrupt;

(6) the Mandate Agreement was subject to an express, or alternatively implied, term that the shares of the listed company to be acquired by the defendant was to be traded on the Australian Stock Exchange after completion of the acquisition, and the plaintiff was in breach of such term, such that there was a total failure of consideration;

(7) the plaintiff was in breach of the express, or alternatively implied, fiduciary duty of good faith under the Mandate Agreement, by permitting its personal interests to be in conflict with its duty to the defendant;

(8) the plaintiff was in breach of the Mandate Agreement, or was negligent, in failing to exercise reasonable care or skill in providing its services and/or advice under the Mandate Agreement.

4. The defendant claims that by reason of the matters referred to in (2), (3), (4) or (5) above, he was entitled to rescind the Mandate Agreement, and is not liable to pay the Fee claimed under the Mandate Agreement. The defendant further counterclaims for the loss and damage he had suffered as a result of the plaintiff’s breach of the Mandate Agreement or its negligence, including wasted professional fees of US$72,000 and A$25,327.52 which he had paid to professionals engaged under the Mandate Agreement, as well as the sum of A$550,000 he had paid to the plaintiff under the Mandate Agreement.

5. Detailed submissions have been made meticulously by counsel for both parties. I will not deal with each and every point they have conscientiously raised, but will focus on the major issues and the reasons which have led me to the conclusions which I have drawn on these issues. If my judgment is brief, it should not be taken to mean that I have not considered all the submissions which Counsel have made, with the care that they deserve.

The underlying transactions

6. To put matters simply, the defendant and his wife were the beneficial owners of a BVI company called HCK China Investment Ltd (“HCK”). HCK held 100% of the shares in Golden Glory International Ltd (“Golden Glory”), which in turn held 86.2% of the issued capital in a PRC company known as Beijing Badaling Cable Car Company Ltd (“Badaling”). Badaling had interests in a cable car business at Badaling in Mainland China.

7. The defendant wished to inject his interests in the cable car business into a public listed company, to raise finance from the public and to enhance the value of his interests. Through the introduction of his brother Ee Ping (“Ping”) and a friend Phuan, the defendant came to know Chen in late 1997. The defendant sought Chen’s help to identify a Hong Kong listed company to purchase, but was persuaded by Chen that the premium for the shell of a Hong Kong listed company was too expensive, and Chen recommended an Australian listed company instead.

8. Chen recommended an Australian listed company to the defendant, because he was aware that Wah Nam Group Ltd (“WNG”) and its associates held the majority shareholding in an Australian listed company called Investment Austasia Ltd (“IAL”), and was interested in selling their shares in IAL. WNG and its associates held a total of 83.57% shareholding in IAL, with a further 5.86% held in the name of other associates, ie Charmlink and Wise Spencer. Chen had apparently been involved before in WNG’s takeover of IAL.

9. The main asset of IAL was its shares in a subsidiary, Wah Nam Infrastructure Investment Ltd (“WNII”), which held interests in toll road projects in Mainland China.

10. The proposal made by Chen to the defendant (“Acquisition”) was that the defendant would purchase the bare shell of IAL, and then inject the shares in Golden Glory into IAL by a sale. Golden Glory would then become a subsidiary of IAL. At the same time, IAL would sell its original assets, ie the shares in WNII, back to WNG.

11. In relation to all issues in this case, I have borne in mind that the relevant events took place as early as in 1997 to 1999. The witnesses did not profess to have clear recollection of these events, which is understandable. When dealing with the disputed evidence, I prefer to place more reliance on the written documents and the contemporaneous correspondence and notes produced in evidence.

12. The evidence shows that it was Chen who took the lead and played a key role in discussing the terms and structure of the Acquisition with WNG, IAL and the professionals Chen selected and engaged for the Acquisition. As a result of such negotiations, on 5 December 1997, the Mandate Agreement was signed between the plaintiff and the defendant. On the same day, the Heads of Agreement was also signed between the defendant and 2 associated companies of WNG (Tascott and Yen Sheng), whereby not less than 50% but not more than 85% of the shares in IAL were to be sold to the defendant. The Heads of Agreement contemplated the sale of IAL’s subsidiaries to WNG for A$46 million, IAL’s acquisition of Golden Glory for A$46 million, and WNG’s sale of its shares in IAL to the defendant, based on the net tangible assets value of IAL after the sale of its subsidiaries.

13. On 8 December 1997, the plaintiff also agreed with WNG to reimburse WNG its expenses to be incurred in the Acquisition, up to a maximum of 3% over and above the consideration on the sale of IAL (“Costs Reimbursement Agreement”). There is a dispute as to whether the defendant was aware of such an agreement.

14. As the Mandate Agreement between the plaintiff and the defendant acknowledges, the Acquisition was by an exchange of assets. The structure of the Acquisition agreed was that WNG was to sell the shares in IAL on the value of its net tangible assets (“NTA”) plus 3 percent. WNG would buy back the assets held by IAL, also at NTA value, with deferred terms of payment in relation to 15% of the price of the assets. IAL would then use the proceeds of the sale of its assets to purchase the cable car business.

15. The approval of the shareholders of IAL by general meeting was required for the Acquisition, and for such purpose, shareholders who were interested in the Acquisition, such as WNG and Wah Nam Holdings Co Ltd (“WNH”), could not vote. It was hence agreed that HCK was to purchase part of the IAL shares from parties associated with WNG but through the use of nominees, such that the nominees would be able to vote at the general meeting.

16. The Heads of Agreement was intended to be replaced by formal agreements. After further negotiations between Chen, IAL and WNG, the formal agreements for the Acquisition were signed in April 1998 (“Acquisition Agreements”), between HCK on the one part, and WNG, WNH and other associated parties on the other part, for HCK’s purchase of 83.6% of the shares in IAL for a total consideration of A$40,721,282.88, and for IAL’s sale to WNG of WNII and another subsidiary, IALHK, at a consideration of A$49 million. A$7.35 million of the A$49 million was to be paid within 15 months, secured by a deposit of all the WNII shares and by 8 promissory notes issued by WNG, 4 in favor of IAL and 4 in favor of HCK.

Any contravention of sections 49 & 50?

17. According to the defendant’s case, at all material times, the plaintiff and/or Chen was an investment adviser within the meaning of the Ordinance, since they were advising the defendant concerning securities when...

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