Cheong Shing Ltd v Yu Kwan

Judgment Date14 December 2007
CourtCourt of Appeal (Hong Kong)
Judgement NumberCACV348/2006
Subject MatterCivil Appeal
CACV000319/2006 CHEONG SHING LTD v. YU KWAN

CACV 319/2006 AND CACV 348/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal noS. 319 of 2006 AND 348 OF 2006

(on appeal from hca NOS. 12021 of 1998 AND 2183 OF 2001 (CONSOLIDATED))

______________________

HCA 12021/1998

BETWEEN

CHEONG SHING LIMITED Plaintiff
and
YU KWAN Defendant

HCA 2183/2001

AND BETWEEN

西安民生集團股份有限公司 1st Plaintiff
(trading in its own name and also trading in the name of 西安民生集團股份有限公司進出口公司 otherwise known as 西安民生集團進出口公司)
MINSHEN GROUP (H.K.) LIMITED 2nd Plaintiff
and
LO KAM WING 1st Defendant
HON KWAI KING KALEN (discontinued) 2nd Defendant
KONG KAI CHEUNG 3rd Defendant
LEE WAI KEUNG 4th Defendant
CHEONG SHING LIMITED 5th Defendant

______________________

(Consolidated by the Order of Deputy High Court Judge Muttrie dated 6 March 2002)

Before : Hon Rogers VP, Le Pichon JA and A Cheung J in Court

Dates of Hearing : 26-30 November 2007

Date of Handing Down Judgment : 14 December 2007

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1. This was an appeal from a judgment of Burrell J given on 15 August 2006 following a trial that had taken some 24 days with 21 days of evidence. The judge gave judgment in favour of the plaintiffs against the first, third and fifth defendants in the sum of $28,260,000 with interest from 17 May 2001. He dismissed the claim against the fourth defendant as well as the counterclaims by the third and fifth defendants. The action against the second defendant had been discontinued some time previously. At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

2. As the judge pointed out in the first paragraph of the judgment, the claim in this case arises from the fact that Mr Yu Kwong (“Mr Yu”), who was the general manager and director of the second plaintiff, passed a cashier order in the sum of HK$38.76 million obtained with the plaintiffs’ funds to the wife of the first defendant at the Kowloon Tong Club. The second plaintiff was a subsidiary of the first plaintiff, Mr Yu also having an interest in the second plaintiff. The plaintiffs’ pleaded case was that the sum was provided as a loan to the first, third and fourth defendants who were partners. At their direction the bank draft was made payable to the fifth defendant.

3. The first and fifth defendants’ defence was that the bank draft was paid pursuant to a joint venture agreement whereby Mr Yu himself would purchase from the fifth defendant 38% of some 60 million shares in KPI Company Ltd (“KPI”). It was said that the price was thus $1.70 per share for 22,800,000 shares. The joint venture agreement was said to be a joint venture whereby the fifth defendant would hold 62% of shares held in KPI and Mr Yu would hold 38%. The fifth defendant would continue to purchase shares and warrants from the market until the shares held would reach 50% of the issued share capital of KPI. It was then that a general offer would be made to acquire all the KPI shares. The third defendant’s defence was that he was not involved in any financial dealing as alleged by the plaintiffs; the only thing that he had done was to introduce Mr Yu to the other defendants and that in so far as he signed documents it was solely to assist Mr Yu and the plaintiffs in obtaining funds.

4. The plaintiffs’ case was that although originally the proposal had been put that the plaintiffs, or at least one of them, should take part in a joint venture with the defendants to purchase KPI shares, after Mr Yu had consulted the first plaintiff in Xian, in particular Mr Shi, it was made clear that the plaintiffs would not take part in any joint venture. Nevertheless, the plaintiffs were prepared to use money that was available from the proceeds of a letter of credit to finance the first, third and fourth defendants. The plaintiffs relied upon two written agreements, one, which was termed a loan agreement numbered KY-001, and the other, referred to as a guaranteed return agreement numbered KY-002, as evidencing the loan agreement. It was then said in the statement of claim that the terms of the agreement were varied to being a loan of HK$38.76 million. That variation was said to have been reached orally and contained in or evidenced by a photocopy of the bank draft that was signed by the third defendant. Although the loan was never repaid in full, credit was given for partial repayment in two sums namely $6.5 million and $4 million.

5. At the trial, and indeed on the hearing of this appeal, the parties were in agreement that the issues in the case were almost entirely issues of fact. There was an issue of law raised at the trial as to whether the provisions of the Moneylenders Ordinance, Cap. 163 would prevent the plaintiffs from recovering the money paid. In short the judge held against the argument and the matter was not argued on this appeal. There was also a question as to whether the repayment of the $4 million had been made by the third defendant under duress. The judge held that the incident which resulted in the third defendant making that payment did not reflect well upon the plaintiffs but did not hold that there had been duress such as would require the payment to be repaid. Again that matter was not argued on this appeal.

6. The judge considered that there were three main series of events that required to be considered. The first concerned the events prior to the time when the bank draft for $38.76 million had been handed over, the second concerned the events which took place at the time when that bank draft was handed over and the third the various events which took place after the bank draft had been handed over and the money received.

7. The judge came to the conclusion that he could not rely on any of the witnesses having told the whole truth. He also considered that on many of the issues raised in the course of the trial it was impossible to make a reliable finding of fact. He summarised his conclusions in this respect in paragraph 8 of the judgment where he said:

8. Apart from the complexities and uncertainties surrounding the issues themselves a further difficulty has been the fact that I do not think any of the seven witnesses who gave evidence (two for the plaintiffs, D1, D1’s wife, D3, D4 and a Mr Wong) told the whole truth. Where the 24 July events and the post 24 July events are capable of being construed as being consistent with both a loan and a joint venture, sifting the truth from falsehoods has been particularly troublesome. Moreover, neither do I think that the entire truth could be found within the entire pool of evidence even if it were possible to miraculously separate truth from lies. In other words not even everything that has been said which is true reveals the whole picture.”

8. Mr Chain, who appeared on behalf of the third defendant, contended that given that the judge held all witnesses to be unreliable he did not seek to challenge the adverse finding against his client. Mr Chan SC, who appeared on behalf of the first and fifth defendants, argued that the judge had not considered the plaintiffs’ evidence with as much thoroughness as the other witnesses, possibly because there was a gap of over one year in the course of the trial. As regards the defendants’ witnesses he sought to argue that the judge had made observations which he challenged and that in the light of that the judge’s holding of unreliability could not stand. In my view, there was quite sufficient reason for the judge to hold that the evidence given by the defendants’ witnesses could not be relied upon. Indeed, having considered those parts of the transcript that were drawn to our attention it would not seem possible for the judge to have held otherwise.

9. The first and most important finding of fact by the judge was that the bank draft of $38.76 million made payable to the fifth defendant was handed over to the first defendant’s wife at the Kowloon Tong Club on 24 July 1997 and the proceeds were credited to the account of the fifth defendant. That having been established, it was then necessary to determine the basis upon which the money had been paid into that account.

10. In considering the events prior to the handing over of the bank draft, there was little dispute that initially the suggestion had been made to Mr Yu on behalf of the plaintiffs that there should be some form of joint venture involving the purchase of KPI shares. Mr Yu was introduced to the first and fourth defendants by the third defendant. The third defendant was an architect who had had business dealings with both the first defendant and with the first plaintiff. The fourth defendant was a medical doctor who worked in a hospital in Hong Kong. The judge said that he had a “deep interest” in stocks and shares. It would appear that he had a close association with the first and third defendants, no doubt contributing his suggestions as to investments rather than providing heavy capital contributions.

11. The first defendant appears to have been the central figure amongst the defendants. The judge described him as a wealthy businessman who claimed that in 1997 he had assets exceeding HK$1 billion. The judge said that he had a style of business that was significant as regards this case. He owned and controlled a large number of small private companies and he rarely, if ever, conducted business in his own name. One of the companies which he controlled was the fifth defendant. Although the first defendant’s wife was often a shareholder or a director of companies which the first defendant controlled, the judge held that it was the first defendant who was ...

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