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New World Development Co Ltd And Another v Sun Hung Kai Securities Ltd

Judgment Cited authorities 1 Cited in Precedent Map Related
Vincent
Judgment Date29 June 2005
CourtCourt of Appeal (Hong Kong)
Judgement NumberCACV205/2004
Subject MatterCivil Appeal
CACV205/2004 NEW WORLD DEVELOPMENT CO LTD AND ANOTHER v. SUN HUNG KAI SECURITIES LTD

cacv 205/2004 & CACV 210/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal nos. 205 and 210 of 2004

(on appeal from HCA No. 3191 of 1999
Consolidated with HCA NO. 21961 of 1998)

____________________

HCA 3191/1999

BETWEEN

NEW WORLD DEVELOPMENT COMPANY LIMITED 1st Plaintiff
STAPLETON DEVELOPMENTS LIMITED 2nd Plaintiff
and
SUN HUNG KAI SECURITIES LIMITED Defendant

____________________

AND

HCA 21961/1998

BETWEEN

SUN HUNG KAI SECURITIES LIMITED Plaintiff
and
NEW WORLD DEVELOPMENT COMPANY LIMITED Defendant

____________________

(HCA 3191/1999 to be consolidated with HCA 21961/1998 pursuant
to the order made by Mr Justice Findlay dated 22 July 1999
with HCA 3191/1999 being the leading case)

____________________

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

Date of Hearing: 7-9 June 2005

Date of Handing Down Judgment: 29 June 2005

____________________

J U D G M E N T

____________________

Hon Rogers VP:

1. This is an appeal from a judgment of Deputy High Court Judge To given on 1 April 2004. The plaintiffs had brought this action in respect of an oral agreement made on behalf of the defendant to take up half the 1st plaintiff’s interest in a joint venture enterprise relating to the construction of two hotels in Kuala Lumpur and those hotels would be operated under the joint venture after construction. The defendant had counterclaimed on the basis that if, which the defendant denied, there had been an enforceable agreement, the 1st plaintiff had been in breach thereof and that the defendant had rescinded the agreement. The judge held in favour of the 1st plaintiff and dismissed the defendant’s counterclaim. He ordered that the defendant should pay the 1st plaintiff $105,534,018.22 together with interest on the principal sum of $80,117,652.72. Whilst ordering the defendant should pay the 1st plaintiff’s costs, he made no order as to costs as between the 2nd plaintiff and the defendant. At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

2. The plaintiff’s case is based upon an oral agreement made in April 1990 between Mr Henry Cheng (“Cheng”) who was the managing director of the 1st plaintiff as well as being a non-executive director of the defendant. The other person who made the agreement was Mr Tony Fung (“Fung”) who was the Chairman and Managing Director of Sun Hung Kai and Co. Limited and also the Executive Chairman of the defendant. Fung and Cheng had been close friends for a very long time. There was no doubt that they not only worked closely together but they also met each other socially on a very frequent basis. In 1990 Mr K B Fung was the managing director of the defendant. Along with Fung, he was a member of the Executive Committee of the defendant’s board, which is referred to in some of the documents as Exco. Mr John Yip, who also features in the events relevant to this case, was also a member of Exco.

3. The various directors of the defendant became aware that the 1stplaintiff was about to embark upon a joint venture development of a site in Kuala Lumpur with IGB Corporation Berhad (“IGB”). At that time, in early 1990, the development of the hotel project in Kuala Lumpur was, apparently, thought to have some attraction as an investment. Although the defendant was a broker it was considered that such an investment might well be sold on to clients. As such, the matter was discussed by Exco and it was agreed that Fung would speak to Cheng to see whether the defendant could be involved in the investment. The intention seems to have been that the defendant would sell on the majority of its involvement whilst retaining a small part for itself. It was in those circumstances that the agreement relied upon by the 1st plaintiff came into existence. It was a very simple oral agreement. In the course of his evidence Cheng described the way in which the agreement came about as follows:

Because I had the intention to sell, to transfer half of my share, meaning 25% of the whole project, I mean I was intending to look for some partners to join me for that part. I remember at that time there were other people who were interested and had made inquiries with me. Because I was a familiar friend with Mr Fung, a good friend of his, Mr Fung at that time on the phone said he wanted to take the 50% of my share, which means 25% of the whole project.

But I then asked him whether he would like to have 25% of my share, instead of 50, which means 12.5% of the whole project. I have told him that there are other people who wanted to join in, and I wanted to entertain my friends with some of the shares.

I remember very clearly that Mr Fung told me one thing. He said he wanted all of it from me. What I mean is, 50% of my share, because otherwise he would not have enough to share out. Because he insisted that, eventually on the phone we agreed that I gave him the 50%.

Also on the phone, as Mr Fung knew briefly about the project already, I told him that we have to pay money-we have to pay the costs according to the proportion. That means whatever it needs to develop the project, we would share in the ratio is mentioned. We would share the same risk, according to that ratio.

(Transcript Day 3 pp 80-81)

4. The 1st plaintiff must have sent on a copy of a Memorandum of Agreement (“the Memorandum”) between the 1st plaintiff and IGB very shortly after that conversation. This was the first document executed between those 2 parties. It was dated 11 April 1990. One of the points made in this case is that the defendant never raised complaint that many of the arrangements of which it became aware were not in accordance with the original oral agreement. Many of those complaints evaporate when the Memorandum is read.

5. The Memorandum sets out the basis for the joint-venture between the 1stplaintiff and IGB relating to the development of lots 113, 91 and part of lot 123 in Kuala Lumpur. The Memorandum sets out that, initially, IGB would be putting the land into the arrangement whereas the 1st plaintiff would be putting in money. The relevant land would be acquired from IGB by a company which was referred to in the Memorandum as Newco. The 1st plaintiff would pay a deposit of M$4,250,000 which would be 10% of the amount which the 1st plaintiff would have to pay initially. The structure of the agreement was that the land was valued at $85 million and IGB would be compensated for the land as to half in cash and half in shares in Newco. The land was to be used to develop two international hotels, one would be a five-star business class hotel and the other a four-star tourist class hotel. It was also made clear that IGB would develop the land adjacent to the site as office buildings but that that should not interfere with the development that was to take place.

6. Importantly, the Memorandum also sets out that the 1st plaintiff would act as the hotel and construction “Advisor” in respect of the development and provide technical consultancy services for the hotels and the construction. IGB would act as the Project Manager in respect of the development on the basis of plans and specifications which were referred to. The contracts relating to the construction of the hotels would be awarded by open tender but Newco would enter into agreements with the 1st plaintiff or its nominees for the operation and management of the hotels on terms which were to be mutually agreed.

7. The Memorandum was not only passed to the defendant but the defendant had that Memorandum before making any payment under the oral agreement. On 11 April 1990 John Yip sent a memo to the defendant’s Treasury with a copy to a C C Kwok requesting a cheque for the defendant’s half share of the deposit. The Memorandum is referred to in that memo from John Yip with a statement that Sun Hung Kai would be procuring investors for the 50% but that Exco had agreed that Sun Hung Kai would retain 5% of the whole project.

8. Although, apparently, not exactly within the three months referred to in the Memorandum, the 1st plaintiff and IGB did execute a Shareholders Agreement which was dated 20 July 1990. A copy of that agreement appears to have been sent by fax to the defendant. On 24 July John Yip again requested the issuance of a cheque to pay for the remaining instalment which was then due. The memo from John Yip refers to the Shareholders Agreement as having been executed on 15 July.

9. Mention should be made that the corporate vehicle used to develop the project and run it thereafter was Great Union Properties Sdn Berhad (“GUP”). This company had held the land on behalf of IGB. It was considered more convenient to use this company as the corporate vehicle rather than incorporate another company and have the land transferred. Inquiries were made in aid of due diligence to ensure that there were no outstanding liabilities that GUP brought with it. In my view nothing turns on the fact that GUP was used as the corporate vehicle.

10. It would appear that the defendant did, indeed, attempt to sell on at least part of the interest which it had acquired. There is, for example, a copy of a telex indicating that John Govett Investment Management might be interested but were querying why the costs in relation to the construction of the hotels had increased in the year since the project had first been considered. There was a letter of 27 March 1991 in which the 1st plaintiff gave the defendant details of the development costs which were put at M$586.71 million inclusive of the land costs which was at that stage still M$85 million. That letter also contained estimates as to when the project...

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