HCA1429/2015 WAH LUN INTERNATIONAL DEVELOPMENT LTD v. LAU CHIU SHING - LawHero
HCA1429/2015
高等法院（民事訴訟）Deputy High Court Judge William Wong SC25/2/2021[2021] HKCFI 407
HCA1429/2015
A A
B B
HCA 1429/2015
C
[2021] HKCFI 407 C
D IN THE HIGH COURT OF THE D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E E
COURT OF FIRST INSTANCE
ACTION NO 1429 OF 2015
F F
G BETWEEN G
H WAH LUN INTERNATIONAL Plaintiff H
DEVELOPMENT LIMITED
I I
and
J J
LAU CHIU SHING Defendant
K K
L L
Before: Deputy High Court Judge William Wong SC in Court
M
Dates of Hearing: 27 - 30 October and 6 November 2020 M
Date of Judgment: 26 February 2021
N N
O O
JUDGMENT
P P
Q Q
A. INTRODUCTION
R 1. In the present action, Wah Lun International Development R
Limited (the “Plaintiff”) seeks a refund of RMB 20 million (the “Earnest
S S
Money”) from Mr Lau Chiu Shing (the “Defendant”) arising from an
T
aborted sale and purchase of 51.44% shareholding (“Target Shareholding”) T
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in e-Kong Group Limited (the “Target Company”), a company listed on the
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main board of the Hong Kong Stock Exchange (Stock Code: 0524).
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2. The main issue in this trial is a factual one, namely, whether the
E E
Plaintiff (through Mr Jia Bin (“Mr Jia”)) and the Defendant reached a
F binding oral agreement for the sale and purchase of the Target Shareholding F
during a discussion in a meeting held in early January 2015 (the “January
G G
2015 Meeting”).
H H
3. The following are the agreed facts between the parties:
I I
J (1) In late December 2014 to early January 2015, Ms Zhang Xiao J
Mei (“Ms Zhang”) introduced the Plaintiff to the Defendant for
K K
the purpose of acquiring a majority shareholding in the Target
L Company. L
(2) In January 2015, there was a meeting between Mr Jia of the
M M
Plaintiff and the Defendant on the acquisition of a majority
N shareholding in the Target Company. N
(3) During the meeting, it was agreed that the value of the Target
O O
Company arising from its listing on the Hong Kong Stock
P Exchange (“the Listing Value”) plus the value of the assets held P
by the Target Company (“the Assets Value”) were the
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composite elements of the purchase price. Whether Mr Jia of
the Plaintiff and the Defendant had entered into a binding
R R
agreement in the meeting is hotly disputed.
S S
(4) The Plaintiff and the Defendant had not signed any written
agreement for the acquisition of the Target Shareholding.
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(5) On or about 28 January 2015, the Plaintiff and the Defendant
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entered into a due diligence agreement (the “Due Diligence
D Agreement”). D
(6) Pursuant to the Due Diligence Agreement, the Plaintiff
E E
deposited the Earnest Money into a bank account designated by
F the Defendant. F
(7) The Plaintiff appointed Messrs. PricewaterhouseCoopers and G
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Messrs. Troutman Sanders to conduct the due diligence
H exercise on the Plaintiff’s behalf. H
I
(8) The due diligence exercise commenced on 2 February 2015. I
(9) On 27 or 28 February 2015, Mr Simon Chiu of the Plaintiff and
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the Defendant had a meeting.
K (10) In early March 2015, the Plaintiff instructed Haitong K
International Securities Group Limited (“Haitong”) as its agent.
L L
(11) On 20 March 2015, by way of text message, the Defendant sent
M an ultimatum to Mr Simon Chiu of the Plaintiff that he had to M
see the funding by 23 March 2015. Mr Simon Chiu replied
N N
on behalf of the Plaintiff, by way of text message, that the
O funding would not be ready by 23 March 2015. O
The Defendant informed the Plaintiff by way of text message
P of the Defendant’s decision to forfeit the Earnest Money. P
Q (12) On 16 or 27 March 2015, there was a meeting between Mr Jia Q
and the Defendant.
R R
(13) On 30 March 2015, by way of text message, Mr Simon Chiu
S represented to the Defendant, inter alia, that the funding would S
be deposited with Haitong on the same day. Subsequently,
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Mr Simon Chiu and the Defendant had a discussion on that day.
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(14) On 8 and 13 April 2015, by way of text messages, Mr Simon
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Chiu on behalf of the Plaintiff proposed to the Defendant
D concerning the purchase of an office premise by the Target D
Company. The Defendant did not accept the proposal.
E E
(15) On 16 April 2015, by way of a letter under its name, the
F Plaintiff requested the Defendant to refund the Earnest Money F
for the reason that no agreement was reached for the share price,
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ratio of acquisition and the arrangement for payment.
H (16) On 29 May 2015, by way of a letter from Messrs. Haldanes, H
solicitors for the Plaintiff to the Defendant, the Plaintiff raised,
I I
inter alia, that the result of the due diligence exercise was not
J satisfactory and requested a refund of the Earnest Money. J
K 4. Both parties agree that if no binding oral agreement was K
concluded in the January 2015 Meeting between Mr Jia on behalf of the
L L
Plaintiff and the Defendant for the sale and purchase of the Target
M Shareholding, then the Earnest Money has to be returned to the Plaintiff on M
the basis that the Earnest Money could not be applied as deposit and/or part-
N N
payment to an agreement which never come into existence (See §9A of the
O Re-Amended Statement of Claim). Mr Yin for the Plaintiff submitted that O
the consideration or special purpose for which the Earnest Money was paid P
P
over by the Plaintiff has failed and the money is repayable either as money
Q Q
had and received (at common law) or as money held on a resulting trust in
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favour of the Plaintiff (in equity) when the Earnest Money were paid over R
for a designated purpose which turns out to be impossible.
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5. The Plaintiff’s case is that the Earnest Money was paid and the T
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Due Diligence Agreement was signed before but in anticipation of the
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parties reaching an agreement on the essential terms necessary to form a
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binding contract for the sale and purchase of the Target Shareholding offered
D for sale by the Defendant. D
E E
6. The possibility of the parties not reaching agreement on the
F essential terms necessary to form a binding contract for the sale and F
purchase of the majority shareholding offered for sale by the Defendant was
G G
not consciously being contemplated by the parties at the time of the payment
H of the Earnest Money and signing of the Due Diligence Agreement (and H
hence not expressly provided for in the Due Diligence Agreement).
I I
J 7. Instead, the parties were optimistic that they would in due J
course be able to reach agreement and enter into a binding contract for the
K K
sale and purchase of the shares and hence, the Due Diligence Agreement
L only provided for the eventualities of either refund of the Earnest Money if L
the Plaintiff promptly informed the Defendant that the result of the due
M M
diligence investigation was unsatisfactory and the Plaintiff had decided not
N to complete the sale and purchase of the shares or appropriation of the N
Earnest Money towards payment of the deposit or part-payment for the
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Target Shareholding if the Plaintiff should decide to proceed with the
P transaction. P
Q Q
8. Given that the parties have failed to reach agreement on the
R essential terms necessary to form a binding contract for the sale and R
purchase of the majority shareholding offered for sale by the Defendant, the
S S
Earnest Money could not be appropriated to its intended use, with the result
T that the money is returnable to the Plaintiff either as money had and received T
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(at common law) or as money held on a resulting trust for the Plaintiff
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(in equity) when its designated purpose could no longer be fulfilled.
D D
9. There is no dispute that if the Plaintiff succeeds on this
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argument, there would be no need to consider the subsequent question of
F whether the Earnest Money is refundable under the terms of the F
Due Diligence Agreement.
G G
H 10. The Defendant’s case is diametrically opposite to the Plaintiff’s. H
It is the Defendant’s case that the Plaintiff and the Defendant reached a
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binding oral agreement in mid or late January 2015 whereby the Plaintiff
J agreed to purchase the Target Shareholding at the price of HK$418,000,000 J
and, subject to the Plaintiff’s satisfaction of the result of the due diligence
K K
exercise, the acquisition was to be completed no later than 18 February 2015.
L L
11. The Plaintiff and the Defendant subsequently executed the
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Due Diligence Agreement, which provided that the Plaintiff should pay the
N Earnest Money to the Defendant as security for conducting the due diligence N
investigation into the Target Company and earnest money for its
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performance of obligations under the binding oral agreement. It was
P further provided that the due diligence exercise was to take place between P
2 and 6 February 2015. The Plaintiff was obliged to inform the Defendant
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of whether it was satisfied with the results of the due diligence exercise
R within 7 days thereafter, ie, on or before 13 February 2015. R
S S
12. If the Plaintiff was satisfied, the Earnest Money became non-
T refundable and would be applied as part of the purchase price. If the T
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Plaintiff was not satisfied, the Plaintiff could exit the transaction and obtain
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a refund of the Earnest Money within 3 days.
D D
13. By obvious and/or necessary implication, the Earnest Money
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was only refundable if the Plaintiff communicated its reasonable
F dissatisfaction in good faith to the Defendant within 7 days from the F
conclusion of due diligence investigation. Otherwise, the Plaintiff would be
G G
deemed to be satisfied with the due diligence investigation and have elected
H to proceed with the transaction. H
I I
14. Even if the Plaintiff could not complete the due diligence
J exercise before 6 February 2015 as a result of the Defendant’s alleged failure J
to procure the Target Company to provide all necessary information on time,
K K
such scenario would only give rise to a postponement of the commencement
L of the 7-day period for the Plaintiff to opt out of the transaction upon the L
completion of the due diligence exercise. It would not thereby set the 7-day
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period at large.
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15. The Plaintiff had never informed the Defendant of its alleged
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dissatisfaction (and none of the purported grounds were reasonable in any
P event) after conducting the due diligence investigation or opted for the P
refund of the Earnest Money and the termination of the binding oral
Q Q
agreement under the Due Diligence Agreement.
R R
16. Instead, the Plaintiff had elected and re-confirmed its election
S S
to complete the transaction, and repeatedly asked the Defendant to postpone
T the completion date as the Plaintiff was unable to arrange funding in time to T
complete the transaction.
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17. After granting the Plaintiff multiple extensions of time, the
C C
Plaintiff admitted that it was unable to complete the transaction on the final
D extended completion date, viz, 20 March 2015, or the ultimatum period D
granted by the Defendant, viz, 23 March 2015. The reason given by the
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Plaintiff to the Defendant was the former’s inability to arrange funds on time.
F As a result, the Defendant refused to further extend the completion date and F
accepted the Plaintiff’s repudiation of the binding oral agreement and
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forfeited the Earnest Money on 20 March 2015.
H H
18. Given that the Plaintiff has wrongfully repudiated the binding
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oral agreement, the Plaintiff has no right to demand the refund of the Earnest
J Money after the same was forfeited by the Defendant on 20 March 2015 and J
upon his acceptance of the Plaintiff’s repudiation.
K K
L 19. I am of the view, and the parties agree, that the most critical L
issue in the present case is whether there is a binding oral agreement between
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the Plaintiff and the Defendant or not. For if there is no binding oral
N agreement, there can be no repudiation on the part of the Plaintiff. If there N
is a binding oral agreement, the Court needs to analyse which party has
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breached the same and the corresponding consequential relief.
P P
B. ORAL AGREEMENT
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20. The parties’ case on the binding oral agreement is diametrically
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opposite to each other. Mr Jia on behalf of the Plaintiff gave evidence to
S this Court and repeated his testimony that he only agreed to some general S
directional terms with the Defendant in the January 2015 Meeting but no
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concluded agreement was ever reached. His case is that pending the due
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diligence exercise, in particular, an assessment of the assets and liabilities
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position of the Target Company, it was impossible that he would have
D agreed to any concrete price, let alone HK$418 million, at the first meeting D
in January.
E E
F 21. The Defendant’s case is that, as an experienced businessman, F
if no price was ever agreed, he would not even allow the Plaintiff to carry
G G
out the due diligence exercise. The due diligence exercise was premised
H upon an agreed price at HK$418 million. H
I I
C. APPROACH TO ASSESSING ORAL TESTIMONY
J J
22. In Lee Fu Wing v Yan Paul Po Ting [2009] 5 HKLRD 513,
K Deputy High Court Judge Au (as he then was) at p 524 helpfully set out the K
well-established approach on assessment of witnesses as follows:
L L
M (1) whether the party’s case is inherently plausible or implausible; M
N
(2) whether the party’s case is, in a material way, contradicted by N
other evidence (documentary or otherwise) which is undisputed
O or indisputable; O
P
(3) where it is shown that a witness has been discredited over one P
or more matters to which he has given evidence using the above
Q tests. This is relevant to the assessment of his overall Q
credibility; and
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(4) the demeanour of the witnesses.
S S
23. Lord Bingham in his book The Business of Judging at pp 5 – 6
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insightfully said:
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“Let me then turn to the central questions. Faced with a conflict of
C evidence on an issue substantially effecting the outcome of an C
action, often knowing that a decision this way or that will have
momentous consequences on the parties’ lives or fortune, how
D D
can and should the judge set about his task of resolving it?
How is he to resolve which witness is honest and which dishonest,
E which reliable and which unreliable? How, as between E
competing experts in a field not his own, is a judge to determine
where the truth lies? Is our existing way of resolving expert
F conflicts the best way? I shall begin by considering the F
resolution of issues of primary fact, the choice between first-hand
G
eye-witnesses. Then I shall turn to expert evidence. G
The normal first step in resolving issues of primary fact is, I feel
H sure, to add to what is common ground between the parties H
(which the pleadings in the action should have identified, but
often do not) such facts as shown to be incontrovertible.
I In many cases, letter or minutes written well before there was any I
breath of dispute between the parties may throw a very clear light
J on their knowledge and intentions at a particular time …. J
The most compendious statement known to me of the judicial
K process involved in assessing the credibility of an oral witness is K
to be found in the dissenting speech of Lord Pearce in the House
of Lords in Onassis v Vergottis. In this he touches on so many
L L
of the matters which I wish to mention that I may perhaps be
forgiven for citing the relevant passage in full:
M M
‘Credibility’ involves wider problems than mere ‘demeanour’
which is mostly concerned with whether the witness appears to
N be telling the truth as he now believes it to be. Credibility covers N
the following problem. First, is the witness a truthful or
untruthful person? Secondly, is he, though a truthful person,
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telling something less than the truth on this issue, or, though an
untruthful person, telling the truth on this issue? Thirdly, though
P he is a truthful person telling the truth as he sees it, did he register P
the intentions of the conversation correctly and, if so, has his
memory correctly retained them? Also, has his recollection
Q Q
even subsequently altered by unconscious bias or wishful
thinking or by over-much discussion of it with others?
R Witnesses, especially those who are emotional, who think that R
they are morally in the right, tend very easily and unconsciously
to conjure up a legal right that did not exist. It is a truism, often
S used in accident cases, that with every day that passes the S
memory becomes fainter and the imagination becomes more
T
active. For that reason a witness, however honest, rarely T
persuades a Judge that his present recollection is preferable to
that which was taken down in writing immediately after the
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accident occurred. Therefore, contemporary documents are
C always of the utmost importance. And lastly, although the C
honest witness believes he heard or saw this or that, is it so
improbable that it is on balance more likely that he was mistaken?
D D
On this point it is essential that the balance of probability is put
correctly into the scales in weighing the credibility of a witness.
E And motive is one aspect of probability. All these problems E
compendiously are entailed when a Judge assesses the credibility
of a witness; they are all part of one judicial process. And in the
F process contemporary documents and admitted or F
incontrovertible facts and probabilities must play their proper
G
part. G
Every judge is familiar with cases in which the conflict between
H the accounts of different witnesses is so gross as to be H
inexplicable save on the basis that one or some of the witnesses
are deliberately giving evidence which they know to be untrue.
I There are, no doubt, witnesses who follow the guidance of the I
Good Soldier Sveyk that ‘The main thing is always to say in court
J what isn’t true,’ as a matter of principle, but more often dishonest J
evidence is likely to be prompted by the hope of gain, the desire
to avert blame or criticism, or misplaced loyalty to one or other
K of the parties. The main tests needed to determine whether a K
witness is lying or not are, I think, the following, although their
relative importance will vary widely from case to case:
L L
(1) the consistency of the witness’s evidence with what is
M agreed, or clearly shown by other evidence, to have M
occurred;
N (2) the internal consistency of the witness’s evidence; N
(3) consistency with what the witness has said or deposed on
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other occasions;
P (4) the credit of the witness in relation to matters not P
germane to the litigation;
Q (5) the demeanour of the witness. Q
The first three of these tests may in general be regarded as giving
R a useful pointer to where the truth lies. If a witness’s evidence R
conflicts with what is clearly shown to have occurred, or is
S internally self-contradictory, or conflicts with what the witness S
has previously said, it may usually be regarded as suspect.
It may only be unreliable, and not dishonest, but the nature of the
T case may effectively rule out that possibility.” (Emphasis added). T
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24. I find the above guidelines helpful and will apply the same in
C C
assessing the credibility of the Plaintiff and the Defendant’s respective case.
D D
25. Having heard the oral testimony of the witnesses and having
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regard to the contemporaneous documents and the parties’ submissions, I
F am of the view that the parties did not conclude any binding oral agreement F
in January 2015 Meeting. I come to this view for a number of reasons.
G G
H 26. First, it is not disputed that there is no written agreement which H
record the terms of the alleged oral agreement. It is strange that the parties
I I
see fit not to have a written contract for a transaction in the size of
J HK$418 million but yet decided to have a written contract for the due J
diligence exercise.
K K
L 27. There is not even a term sheet and any formal documents to L
evidence a transaction of such magnitude. Mr Yin for the Plaintiff
M M
submitted that it is inherently improbable that the parties would see fit to
N sign a written Due Diligence Agreement without at the same time at least N
recording the essential terms of the oral agreement in a written memorandum
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if a prior binding oral agreement had indeed been concluded. I agree.
P P
28. Secondly, I am of the view that the wording of the
Q Q
Due Diligence Agreement actually shows that there is no concluded binding
R oral agreement between the parties. The Due Diligence Agreement R
provides that:
S S
T “鉴于： T
一、 甲方系刘超成及其直接或间接持有的公司 (以下统称
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“目标公司”)。
C C
二、 乙方系一家香港注册的有限公司，拟收购上述甲方所
D
持有的目标公司股权。 D
三、 乙方拟收购甲方所持有目标公司股权，并需对目标公
E 司作相应的尽职调查，并据调查结果决定是否继续完 E
成收购。
F F
基于上述情况，现甲、乙双方经友好协商，就上述收购项目
以之尽职调查事宜，达成一致协议如下：
G G
一、 上述目标公司尽职调查期限为 2015 年 2 月 2 日至
H 2015 年 2 月 6 日。 H
I
二、 甲方对乙方在尽职调查中所提出的问题应予以协助 I
解决及解答，以帮助乙方在尽职调查期间内完成全面
细致的调查工作。
J J
本协议签订后三日内，乙方须将人民币 2000 万元支付到甲
K 方如下指定银行收款账号 (账号：41010900040033218，户名： K
深圳市小夜曲贸易有限公司，开户银行：中国农业银行深圳
L 人民北路支行)，该款项作为上述目标公司收购项目的尽职调 L
查保证金及诚意金。尽职调查期限届满 7 日内，乙方须通知
甲方上述目标公司股权收购项目的尽职调查结果是否满意
M M
以及是否决定继续完成全部收购项目。若乙方尽职调查结果
为满意，则上述人民币 2000 万元保证金及诚意金自动转为
N N
项目收购支付价款的一部分；约乙方尽职调查结果为不满意，
则甲方须按乙方指示，在三日内无条件将上述人民币 2000 万
O 元保证金及诚意金退回至乙方指定账户。” (Emphasis added) O
P P
29. I agree with Mr Yin for the Plaintiff that the word “拟” means
Q Q
“intended” or “proposed”. That defeats any argument that the parties have
R reached any binding oral agreement in the January 2015 Meeting. For if R
the parties did conclude a binding oral agreement, it is inexplicable as to
S S
why the parties would use the word “拟”. It is true that the Due Diligence
T Agreement was drafted by the Plaintiff’s side, but there is no dispute that T
the Defendant, a seasoned businessman, read and signed the Due Diligence
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Agreement to signify his consent to the content of the Due Diligence
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Agreement.
D D
30. Mr Yin for the Plaintiff is right that if the parties had reached a
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binding oral agreement and the price of HK$418 million had been agreed,
F there is no reason why the terms of the oral agreement were not recorded in F
the recital of the Due Diligence Agreement. Instead, the recital
G G
specifically and deliberately records a proposed or intended transaction.
H H
31. It is obvious to the Court that the parties were careful not to
I I
state or have any documents to record any binding agreement, oral or
J otherwise, for the Plaintiff to purchase 51.44% of the Target Company. J
The word “拟” was chosen and used deliberately and for a purpose.
K K
L 32. Thirdly, in the context of the present case, if a binding oral L
agreement had been reached in January 2015, it would most likely have
M M
triggered a general offer obligation on the part of the Plaintiff. The price
N having been agreed in a binding agreement has to be announced. If such N
an agreement had been reached or concluded, it is difficult to understand
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why the same needs not be disclosed through the Hong Kong Stock
P Exchange. There is no dispute that no such announcement was ever made. P
Q Q
33. Further, if such a binding oral agreement had been reached, it
R would mean that the due diligence exercise would be superfluous or R
meaningless as a general offer would have to be made on the basis of the
S S
agreed price. Also there would not be much point in finding out the assets
T T
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and liabilities position of the Target Company as the price would have been
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fixed and announced.
D D
34. Insofar as the mandatory general offer is concerned, such
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requirement is provided in Rule 26 of the Codes on Takeovers and Mergers
F and Share Buy-Backs (“Rule 26”). The key features of Rule 26 as relevant F
to the present proceedings are as follows:
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H (1) Subject to the granting of a waiver by the Securities and Futures H
Commission, when any person who acquires, whether by a
I I
series of transactions over a period of time or not, 30% or more
J of the voting rights of a listed company, that person shall J
extend offers, on the basis set out in this Rule 26, to the holders
K K
of each class of equity share capital of the company whether
the class carries voting rights or not (Rule 26.1(a)).
L L
(2) The general offer made under Rule 26 must be in cash or be
M M
accompanied by a cash alternative at not less than the highest
price paid by the offeror during the offer period and within
N N
6 months prior to its commencement (Rule 26.3(a)).
O O
(3) The Codes on Takeovers and Mergers and Share Buy-Back
(“the Codes”) do not have the force of law, but those who wish P
P
to take advantage of the securities markets in Hong Kong
Q should conduct themselves in accordance with the Codes. Q
Otherwise, they may find, by way of sanction, that the facilities
R R
of such markets are withheld in order to protect the interests of
S those who participate in Hong Kong’s securities markets. S
(§§1.3, 1.4 of the Introduction to the Codes).
T T
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35. Mr Chan for the Defendant submitted that as apparent from
C C
Rules 26.1 and 26.3, the obligation to make a mandatory general offer to
D other shareholders arises subsequent to the offeror’s acquisition of voting D
rights of over 30%. It has always been the Plaintiff’s case that from the
E E
very beginning, the Plaintiff’s intention was to acquire a controlling stake in
F a listed company in Hong Kong, by virtue of which, a mandatory general F
offer is a must and inevitable under the Codes.
G G
H 36. However, it is important to note that the above submission is H
contrary to Mr Jia’s evidence. Mr Jia’s evidence is that the idea of a
I I
mandatory offer was raised but the Defendant suggested to him that the
J Plaintiff could in fact avoid a general offer by receiving the Target J
Shareholding through a few nominees. The Plaintiff did not agree to make
K K
a mandatory offer during the January 2015 Meeting. I find Mr Jia’s
L evidence to be credible as it sits well with the contemporaneous documents. L
M M
37. In a draft agreement for the sale of 26.87% of the shareholding
N of the Target Company to the Plaintiff by Costrade Group Limited and N
3 other unnamed shareholders prepared by Messrs. Troutman Sanders dated
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9 March 2015 with comments from TC & Co (acting for the Defendant)
P dated 2015, it shows that the intended sale was for a shareholding less than P
30% so as to avoid the triggering of the general offer obligations.
Q Q
This does not sit well with the Defendant’s oral testimony that the idea of a
R mandatory offer was agreed from the very beginning during the R
January 2015 Meeting.
S S
T T
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38. Further, in a letter dated 27 January 2015 from Messrs.
C C
Troutman Sanders to the Plaintiff, it was also recorded that the instruction
D was to assist in the acquisition of not more than 30% shareholding of the D
Target Company. Had an agreement been reached on making a mandatory
E E
general offer, such step would have been unnecessary.
F F
39. Hence, I accept Mr Jia’s evidence that he was uncertain about
G G
the idea of holding part of the Target Shareholding through some nominees
H and he asked Mr Simon Chiu to study the same and report back to him. H
Indeed, the idea of a mandatory general offer came much later when the
I I
Plaintiff under the advice of Mr Simon Chiu decided not to violate any rules
J of the Codes. J
K K
40. I therefore reject the Defendant’s oral testimony that the parties
L had agreed to go down the route of a mandatory general offer during the L
January 2015 Meeting. If that had been the agreement, it would have been
M M
detailed in the Defendant’s witness statement. Also, it is inconsistent with
N the draft agreement for the Plaintiff to acquire the 26.87% of the N
shareholding of the Target Company and the specific instructions given to
O O
Messrs. Troutman and Sanders to acquire not more than 30% of the
P shareholding of the Target Company. This also impacts on the Court’s P
assessment of the overall credibility of the Defendant.
Q Q
R 41. I also agree with Mr Yin for the Plaintiff that the fact that those R
representing the Defendant had subsequently sought, albeit unsuccessfully,
S S
to procure the Plaintiff to enter into written agreements for the sale and
T purchase of separate blocks of shares from different individuals (who T
U U
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A A
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B B
together held 51.44% of the Target Company) is inconsistent with the
C C
assertion that there was already in existence a binding oral agreement for the
D purchase of 51.44% from the Defendant. D
E E
42. Mr Yin for the Plaintiff also submitted that it cannot make any
F difference that the Plaintiff was allegedly aware that the shares were not held F
in the Defendant’s own personal name because if the alleged oral agreement
G G
was already in place the obligation would be owed by the Defendant to the
H Plaintiff to procure the individual shareholders to transfer their shares which H
the Defendant had agreed to sell to the Plaintiff upon completion and it is
I I
not only unnecessary but it would not have made any sense for the Plaintiff
J to enter into direct contractual relationship individually with each those J
actually holding the shares to acquire several blocks of minority
K K
shareholdings with the attendant problem of having to find a mechanism to
L ensure that the Plaintiff would not be stuck with a minority shareholding. L
Whatever may have been said or not said at the meeting between Mr Jia and
M M
the Defendant in early January 2015, the fact that the parties were
N negotiating for the Plaintiff to enter into written agreements for the sale and N
purchase of separate blocks of shares from the individuals in whose name
O O
were registered is strongly indicative that the parties had always intended
P P
that any binding contractual obligations would arise only upon the signing
Q
of the written agreements with the registered shareholders. It follows that Q
even if the figures of HK$418 million had been thrown about at the meeting
R R
as a price at which the parties might be prepared to strike a deal, it could not
S
have been intended to give rise to a binding oral agreement for the sale of S
51.44% shareholding in the Target Company. I agree.
T T
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B B
43. Further, I also note that the aforesaid draft agreement contains
C C
a clause which stipulates that the Earnest Money were to be treated as a part
D payment of the purchase price of the 26.87% of the shareholding of the D
Target Company.
E E
F 44. Fourthly, I observe that for the sale of 26.87% of the F
shareholding of the Target Company, the price was not even stated in the
G G
draft document. I agree with Mr Yin for the Plaintiff that if the price of
H HK$418 million had indeed been agreed, there is no reason why an agreed H
price would not have been stated in the draft legal document.
I I
The irresistible inference is that the parties have not yet finalized the price
J in March 2015. J
K K
45. Fifthly, it is the Defendant’s own case, during his oral
L testimony, that the price of HK$418 million comprises of two elements, L
namely, the value of the listing status (commonly known as the “shell price”)
M M
at HK$288 million and the net asset value at HK$130 million. However,
N the net asset value could be adjusted upon the conclusion of the due N
diligence exercise. Given that the net asset value was yet to be ascertained,
O O
it cannot be right that the parties had already agreed on a purchase price at
P HK$418 million during the January 2015 Meeting. P
Q Q
46. Sixthly, the Defendant informed this Court that in fact he was
R not the beneficial owner of 51.44% of the shareholding of the Target R
Company but that he had authority to sell the 51.44% shareholding of the
S S
Target Company on behalf of two gentlemen, namely, Mr Chan Hing Ping
T T
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and Mr Richard John Siemens. This does not sit well with the terms of the
C C
Due Diligence Agreement.
D D
47. The Defendant said that “Mr Jia agreed on behalf of the
E E
Plaintiff to purchase and I agreed to sell 51.44% of the shareholding in the
F Target Company (“Target Shareholding”) at the price of HK$418,000,000. F
Mr Jia was fully aware of the fact that I was not holding any shares of the
G G
Target Company at the time but would procure the Target Shareholding
H from the several shareholders owning the same”. (Paragraph 3(a) of the H
Defendant’s Witness Statement) (Emphasis added)
I I
J 48. What the Defendant did not say in his witness statement was J
that the Target Shareholding was in fact owned by two individuals and he
K K
had full authority to enter into the oral agreement on their behalf including
L concluding a price at the January 2015 Meeting. L
M M
49. I find this difficult to understand because if the Defendant
N indeed had had authority to enter into the oral agreement, there would be no N
need for him “to procure the Target Shareholding from the several
O O
shareholders owning the same”. No procurement would be required as the
P Defendant would have full authority to enter into a binding oral agreement P
to sell the Target Shareholding.
Q Q
R 50. Further, if Mr Richard John Siemens had given full authority R
to the Defendant to sell his shareholding to the Plaintiff and a deal was
S S
concluded at the January 2015 Meeting, there is no reason why the same
T information was not communicated to Mr Richard John Siemens around the T
same time. If that information had been communicated, it is inexplicable
U U
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why Mr Richard John Siemens would then have sold his shareholding to six
C C
other individual shareholders before the completion of the due diligence
D exercise. I am of the view that it could only mean that no binding oral D
agreement was reached in the January 2015 Meeting. Hence, Mr Richard
E E
John Siemens saw fit to sell his shareholding to other individuals without
F letting the Plaintiff know or obtaining the Plaintiff’s consent. F
G G
51. The Defendant said that he could have procured the six
H individuals to transfer their shareholding to the Plaintiff. That may or may H
not be the case but the fact is that the liberty to sell on the part of Mr Richard
I I
John Siemens to the six individuals tends to show that no binding agreement
J was concluded by the Defendant on behalf of Mr Chan Hing Ping and J
Mr Richard John Siemens.
K K
L 52. Mr Yin for the Plaintiff submitted that the Defendant’s L
testimony that the 51.44% shareholding of the Target Company was
M M
beneficially owned by Mr Richard John Siemens and Mr Chan Hing Ping
N and that although in entering into the alleged binding oral agreement, the N
Defendant was incurring a personal liability towards the Plaintiff to deliver
O O
the Target Shareholding upon completion, the Defendant was in fact selling
P as the duly authorized agent of the two gentlemen as his undisclosed P
principals is not only directly contradicted by what was expressly stated in
Q Q
the recital to the Due Diligence Agreement where the vendor was described
R as the Defendant and his directly or indirectly held companies, but R
completely at odds with the conduct of Mr Richard John Siemens who is
S S
recorded as having transferred the shares registered in his name to not less
T T
than six different individuals. I agree.
U U
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B B
53. Mr Yin for the Plaintiff further submitted that under cross-
C C
examination, the Defendant was categorical in testifying that those six
D individuals were genuine purchasers at arms-length (as opposed to nominees D
for the two gentlemen) but he was unable to provide any or any convincing
E E
explanation as to why Mr Richard John Siemens would have sold the same
F shares again to someone else after the Defendant acting with his authority F
had already come to a prior binding oral agreement with the Plaintiff for the
G G
sale of those shares some 8 to 10 days previously or how the Defendant’s
H authority to sell the shares was supposed to enable the Defendant to procure H
delivery of the shares upon conclusion of the oral agreement if they had
I I
already been sold by Mr Richard John Siemens to the six individuals prior
J to the completion date. I also agree. J
K K
54. Mr Yin for the Plaintiff is also right in submitting that the sale
L by Mr Richard John Siemens before the completion date would have L
rendered nugatory the Defendant’s authority to sell and put it out of the
M M
Defendant’s power to deliver those shares to the Plaintiff upon the
N completion of the oral agreement. There is no escape from the conclusion N
that if the Defendant’s testimony that the six individuals were genuine
O O
purchasers at arms-length were true, then in the absence of anything to
P P
suggest that Mr Richard John Siemens was deliberately seeking to renege
Q
on the deal with the Plaintiff, the proper inference to be drawn from the sale Q
to the six individuals by Mr Richard John Siemens is that he had never
R R
authorized the Defendant to sell the shares for him. Hence, there can be no
S
binding oral agreement in January 2015. S
T T
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B B
55. Seventhly, it is the Defendant’s oral testimony that no oral
C C
agreement would be concluded unless and until Mr Jia of the Plaintiff and
D Mr Chan Hing Ping shook hands and they did in a dinner immediately D
following the January 2015 Meeting. However, there is no evidence or
E E
suggestion that Mr Jia of the Plaintiff ever shook hands with Mr Richard
F John Siemens. The Defendant’s answer, during the cross-examination, is F
that Mr Chan Hing Ping represented Mr Richard John Siemens as well. I
G G
find this hard to believe because there is no evidence or suggestion that
H Mr Richard John Siemens gave any authority to Mr Chan Hing Ping to H
conclude any deals on his behalf. Further, the evidence suggests that
I I
Mr Richard John Siemens knew nothing about the January 2015 Meeting.
J J
56. Eighthly, in a document entitled “ 介紹及協調服務協議 ”,
K K
clause 4.1 provides that:
L L
“4.1 若選定賣方達成對購入控制性股權有法律約束力的買
M M
賣協議或成功購入控制性股權，甲方支付介紹費予乙
方，介紹費為 600 萬港幣。” (Emphasis added)
N N
O 57. There is no evidence that Ms Zhang ever demanded the O
Plaintiff for the sum of HK$6,000,000 or that the Plaintiff had paid Ms
P P
Zhang the sum of HK$6,000,000. If indeed a legally binding sale and
Q purchase agreement had been reached, it would be strange if Ms Zhang did Q
not demand or chase the Plaintiff for the payment of HK$6,000,000.
R R
S 58. Ninthly, in terms of the WeChat or text messages which the S
Defendant heavily relied upon to evidence the existence of a binding oral
T T
agreement, I agree with Mr Yin for the Plaintiff that given that the Court is
U U
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A A
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B B
dealing with informal text messages and having regards to the innate
C C
ambiguities and nuances of some of the expressions, the Court should be
D slow to accept the out-of-context meanings attributed by the Defendant to D
the words used. For example, when Mr Simon Chiu sent a text message to
E E
Ms Zhang stating “確認一下作價問題”, the phrase could not be understood
F as simply seeking re-confirmation of the price already agreed as the words F
G
“問題” can also suggest that the price was still not settled. Also the words G
“錢的問題” could have properly been understood to refer to the funds
H H
required for a general offer and not the agreed price for the purchase of
I 51.44%. I
J J
59. The words “是否决定继续完成全部收购项目” in the Due
K Diligence Agreement equally cannot bear only one meaning, viz, a binding K
oral agreement had already been concluded prior to the signing of the Due
L L
Diligence Agreement. I agree that those words are also apt to describe a
M situation where there is not yet in existence any binding oral agreement and M
the Plaintiff would decide whether to proceed with the transaction in light
N N
of the outcome of the due diligence exercise.
O O
60. Similarly, the phrases used by Mr Simon Chiu in his
P P
communication with Ms Zhang and the Defendant which might carry the
Q meaning that the price of the acquisition had been agreed have to be read in Q
context. Mr Simon Chiu has given his explanations in his witness statement
R R
to which I accept.
S S
61. In general, I find Mr Jia and Mr Simon Chiu’s evidence
T T
credible. Mr Jia is very consistent that during the January 2015 Meeting,
U U
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A A
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B B
only some directional issues were agreed but the concrete price and methods
C C
of acquisition have to be agreed after the completion of the due diligence
D exercise. He agreed that the issue of the Listing Value was raised and D
discussed. Mr Chan for the Defendant submitted that Mr Jia has conceded
E E
in his evidence that he may have agreed to the price proposed by the
F Defendant after the Defendant had reduced the Listing Value to HK$288 F
million. However, I agree with Mr Yin for the Plaintiff that when Mr Jia
G G
uttered the words “有可能有講過” he was referring to the Defendant’s offer
H H
to lower the Listing Value to HK$288 million, and when Mr Chan
I
subsequently put to Mr Jia that he had agreed to buy the shares at the price I
of HK$288 million subject to satisfactory due diligence results, Mr Jia’s
J J
answer was “我沒有必要提早去同意這個”. I find his evidence credible.
K K
62. Also when Mr Jia testified that a difference of HK$30 million
L L
in the asset value of the Target Company was not material to him, it cannot
M be taken to mean that he actually agreed to the Defendant’s case that the M
asset value is HK$130 million. I am of the view that what he meant was
N N
that if there was a different of HK$30 million after the due diligence exercise,
O that by itself would not be a deal breaker. O
P P
63. Mr Simon Chiu’s evidence is also consistent. His evidence is
Q basically that he did not participate in the January 2015 Meeting and Q
therefore did not know what happened during the meeting. He was there to
R R
assist Mr Jia of the Plaintiff to carry out the due diligence exercise and to
S make sure that the transaction could go through legally and effectively. S
I find his evidence that he first found the idea of avoiding the general offer
T T
obligation doggy but went along with it initially credible. He subsequently
U U
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A A
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B B
advised the Plaintiff to go for a mandatory general offer. This is consistent
C C
with the timetables prepared by Hoitong.
D D
64. Mr Yin for the Plaintiff submitted that the text message sent by
E E
Mr Simon Chiu on 17 March 2015 to promise that the transaction would be
F completed as soon as possible is equivocal both as to whether a binding oral F
agreement for the sale and purchase of the shares had already been
G G
concluded and as to whether there were any outstanding issues raised in the
H due diligence exercise which remained unresolved. Mr Yin further H
submitted that properly understood in its context, it was no more than a
I I
statement of reassurance that the Plaintiff remained in earnest. It cannot
J be understood as an admission by the Plaintiff that there was in existence a J
binding oral agreement or that the due diligence problems have been
K K
resolved. I agree.
L L
65. On the contrary, I find the Defendant’s evidence less credible.
M M
For example, his oral evidence that the parties had agreed to go for
N mandatory offer in the January 2015 Meeting was not mentioned in his N
witness statements. It is also contradicted by the contemporaneous
O O
documentary evidence.
P P
66. His evidence that he had full authority from Mr Richard John
Q Q
Siemens to sell his 24.57% of the shareholding of the Target Company is
R flatly contradicted by Mr Richard John Siemens’ sale of his shareholding to R
six purchasers. The Target Company’s announcement dated 31 March
S S
2015 makes this point clear. On the contrary, the Target Company had not
T made any announcement that Mr Chan Hing Ping had entered into any T
U U
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A A
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B B
binding agreement to sell his 26.87% of the shareholding in the Target
C C
Company to the Plaintiff.
D D
67. Further, when being cross-examined on the need to enter into
E E
separate written agreement with different registered owners of the Target
F Shareholding, the Defendant for the first time, in oral testimony, said that it F
was the idea of Ms Zhang who at her own initiative tried to preserve for the
G G
Plaintiff the possibility of avoiding the obligation to make a general offer by
H disguising the acquisition of a 51.44% shareholding by splitting it up into H
several transactions. I find that explanation to be incredible. First, it is
I I
against the Defendant’s own evidence that there was an agreement that the
J acquisition would be by way of a mandatory offer during the January 2015 J
Meeting. Secondly, given the agreement to go for a mandatory offer, it is
K K
incredible that Ms Zhang would have come up with a plan to avoid the
L general offer obligation on her own initiative. L
M M
68. Still further, the Defendant’s assertion, made for the first time
N in his oral testimony, that the obligation to pay over a forfeitable deposit had N
been discussed at the first meeting when the asserted binding oral agreement
O O
was concluded, is, in my view, hard to believe. Mr Yin for the Plaintiff
P submitted that the assertion is not consistent with the Defendant’s pleaded P
case (§5 of the Re-Amended Defence) and it is inconceivable that the
Q Q
Defendant’s case would have been pleaded in that way if what is being
R asserted is true. R
S S
69. Additionally, I also accept Mr Yin’s submission that the
T Defendant’s testimony during cross-examination that the figure of HK$418 T
U U
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B B
million had resulted from a counter-offer from Mr Jia is incredible. It is
C C
inconsistent with paragraph 4(a) of the Defendant’s witness statement which
D stated that the Defendant had taken the initiative to lower the listing value D
to HK$418 million in order to incentivise Mr Jia to accept the deal. Further,
E E
the Defendant had retracted the allegation of a counter-offer from Mr Jia in
F re-examination. F
G G
70. Overall, I am of the view that the Court should take into
H account all the factual circumstances into consideration and make its own H
assessment according to established principles. It will be dangerous for the
I I
Court to rely on one or more informal text messages to come to a view as to
J whether a binding oral agreement was reached in the January 2015 Meeting. J
K K
71. I have also taken into consideration the Defendant’s grant of
L time extensions to the Plaintiff to arrange for funds and the fact that the sum L
of HK$450 million was deposited into Haitong on 30 March 2015, but I am
M M
of the view that they are not determinative on whether a binding oral
N agreement was reached in the January 2015 Meeting. They are also N
consistent with the Plaintiff’s intention or efforts to complete an intended
O O
transaction.
P P
72. Finally, I should also mention that I come to the above decision
Q Q
irrespective of which party bears the burden of proof in establishing the
R existence or non-existence of the asserted binding oral agreement as I do not R
find it attractive to decide this case purely on burden of proof. It is also not
S S
necessary to do so as the evidence is quite clear to this Court.
T T
U U
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A A
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B B
73. I also do not find it to necessary to draw any inference, adverse
C C
or otherwise, from the fact that Ms Zhang was not called as a witness in the
D trial. D
E E
F F
D. DISPOSITION
G G
74. For all the reasons stated above, I make an order that the
H Defendant do return the sum of HK$20 million to the Plaintiff forthwith with H
interest at Hongkong and Shanghai Banking Corporation’s prime rate plus
I I
1%.
J J
75. As this Court has come to the factual finding that no binding
K K
oral agreement was reached between the parties, there is no need for this
L Court to deal with other factual disputes of the parties. In Goff & Jones: L
The Law of Unjust Enrichment, 9th Ed., the learned editors at §14-06 state:
M M
“A pre-contract deposit, paid before any binding contract has been
N N
entered, is essentially an expression of seriousness of intention
on the part of the prospective purchaser. It is not subject to the
O same principles as deposits paid at the time of making a contract. O
Part of the basis of payment of a pre-contract deposit is that the
contract will subsequently come into existence. If, therefore, no
P contract materializes, the basis of the payment has failed, and the P
deposit must be returned.” (Emphasis added)
Q Q
R
76. As far as costs is concerned, I make a cost order nisi that the R
Defendant is to pay the costs of and occasioned by the present action
S S
including this trial to the Plaintiff, to be taxed on a party to party basis, if
T not agreed. The above costs order nisi will be made absolute unless the T
parties apply to vary the same within 14 days from the day hereof.
U U
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B B
77. Finally, it remains for this Court to thank Mr Yin for the
C C
Plaintiff and Mr Chan for the Defendant for their helpful assistance.
D D
E E
F F
G G
H H
I I
(William Wong SC)
J
Deputy High Court Judge J
K K
L L
Mr Michael Yin, instructed by Haldanes, for the Plaintiff
M Mr Isaac Chan and Mr Jeff Chan, instructed by Michael Li & Co, for the M
Defendant
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
WAH LUN INTERNATIONAL DEVELOPMENT LTD v. LAU CHIU SHING
A A
B B
HCA 1429/2015
C
[2021] HKCFI 407 C
D IN THE HIGH COURT OF THE D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E E
COURT OF FIRST INSTANCE
ACTION NO 1429 OF 2015
F F
G BETWEEN G
H WAH LUN INTERNATIONAL Plaintiff H
DEVELOPMENT LIMITED
I I
and
J J
LAU CHIU SHING Defendant
K K
L L
Before: Deputy High Court Judge William Wong SC in Court
M
Dates of Hearing: 27 - 30 October and 6 November 2020 M
Date of Judgment: 26 February 2021
N N
O O
JUDGMENT
P P
Q Q
A. INTRODUCTION
R 1. In the present action, Wah Lun International Development R
Limited (the “Plaintiff”) seeks a refund of RMB 20 million (the “Earnest
S S
Money”) from Mr Lau Chiu Shing (the “Defendant”) arising from an
T
aborted sale and purchase of 51.44% shareholding (“Target Shareholding”) T
U U
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A A
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B B
in e-Kong Group Limited (the “Target Company”), a company listed on the
C C
main board of the Hong Kong Stock Exchange (Stock Code: 0524).
D D
2. The main issue in this trial is a factual one, namely, whether the
E E
Plaintiff (through Mr Jia Bin (“Mr Jia”)) and the Defendant reached a
F binding oral agreement for the sale and purchase of the Target Shareholding F
during a discussion in a meeting held in early January 2015 (the “January
G G
2015 Meeting”).
H H
3. The following are the agreed facts between the parties:
I I
J (1) In late December 2014 to early January 2015, Ms Zhang Xiao J
Mei (“Ms Zhang”) introduced the Plaintiff to the Defendant for
K K
the purpose of acquiring a majority shareholding in the Target
L Company. L
(2) In January 2015, there was a meeting between Mr Jia of the
M M
Plaintiff and the Defendant on the acquisition of a majority
N shareholding in the Target Company. N
(3) During the meeting, it was agreed that the value of the Target
O O
Company arising from its listing on the Hong Kong Stock
P Exchange (“the Listing Value”) plus the value of the assets held P
by the Target Company (“the Assets Value”) were the
Q Q
composite elements of the purchase price. Whether Mr Jia of
the Plaintiff and the Defendant had entered into a binding
R R
agreement in the meeting is hotly disputed.
S S
(4) The Plaintiff and the Defendant had not signed any written
agreement for the acquisition of the Target Shareholding.
T T
U U
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A A
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B B
(5) On or about 28 January 2015, the Plaintiff and the Defendant
C C
entered into a due diligence agreement (the “Due Diligence
D Agreement”). D
(6) Pursuant to the Due Diligence Agreement, the Plaintiff
E E
deposited the Earnest Money into a bank account designated by
F the Defendant. F
(7) The Plaintiff appointed Messrs. PricewaterhouseCoopers and G
G
Messrs. Troutman Sanders to conduct the due diligence
H exercise on the Plaintiff’s behalf. H
I
(8) The due diligence exercise commenced on 2 February 2015. I
(9) On 27 or 28 February 2015, Mr Simon Chiu of the Plaintiff and
J J
the Defendant had a meeting.
K (10) In early March 2015, the Plaintiff instructed Haitong K
International Securities Group Limited (“Haitong”) as its agent.
L L
(11) On 20 March 2015, by way of text message, the Defendant sent
M an ultimatum to Mr Simon Chiu of the Plaintiff that he had to M
see the funding by 23 March 2015. Mr Simon Chiu replied
N N
on behalf of the Plaintiff, by way of text message, that the
O funding would not be ready by 23 March 2015. O
The Defendant informed the Plaintiff by way of text message
P of the Defendant’s decision to forfeit the Earnest Money. P
Q (12) On 16 or 27 March 2015, there was a meeting between Mr Jia Q
and the Defendant.
R R
(13) On 30 March 2015, by way of text message, Mr Simon Chiu
S represented to the Defendant, inter alia, that the funding would S
be deposited with Haitong on the same day. Subsequently,
T T
Mr Simon Chiu and the Defendant had a discussion on that day.
U U
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A A
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B B
(14) On 8 and 13 April 2015, by way of text messages, Mr Simon
C C
Chiu on behalf of the Plaintiff proposed to the Defendant
D concerning the purchase of an office premise by the Target D
Company. The Defendant did not accept the proposal.
E E
(15) On 16 April 2015, by way of a letter under its name, the
F Plaintiff requested the Defendant to refund the Earnest Money F
for the reason that no agreement was reached for the share price,
G G
ratio of acquisition and the arrangement for payment.
H (16) On 29 May 2015, by way of a letter from Messrs. Haldanes, H
solicitors for the Plaintiff to the Defendant, the Plaintiff raised,
I I
inter alia, that the result of the due diligence exercise was not
J satisfactory and requested a refund of the Earnest Money. J
K 4. Both parties agree that if no binding oral agreement was K
concluded in the January 2015 Meeting between Mr Jia on behalf of the
L L
Plaintiff and the Defendant for the sale and purchase of the Target
M Shareholding, then the Earnest Money has to be returned to the Plaintiff on M
the basis that the Earnest Money could not be applied as deposit and/or part-
N N
payment to an agreement which never come into existence (See §9A of the
O Re-Amended Statement of Claim). Mr Yin for the Plaintiff submitted that O
the consideration or special purpose for which the Earnest Money was paid P
P
over by the Plaintiff has failed and the money is repayable either as money
Q Q
had and received (at common law) or as money held on a resulting trust in
R
favour of the Plaintiff (in equity) when the Earnest Money were paid over R
for a designated purpose which turns out to be impossible.
S S
5. The Plaintiff’s case is that the Earnest Money was paid and the T
T
Due Diligence Agreement was signed before but in anticipation of the
U U
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A A
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B B
parties reaching an agreement on the essential terms necessary to form a
C C
binding contract for the sale and purchase of the Target Shareholding offered
D for sale by the Defendant. D
E E
6. The possibility of the parties not reaching agreement on the
F essential terms necessary to form a binding contract for the sale and F
purchase of the majority shareholding offered for sale by the Defendant was
G G
not consciously being contemplated by the parties at the time of the payment
H of the Earnest Money and signing of the Due Diligence Agreement (and H
hence not expressly provided for in the Due Diligence Agreement).
I I
J 7. Instead, the parties were optimistic that they would in due J
course be able to reach agreement and enter into a binding contract for the
K K
sale and purchase of the shares and hence, the Due Diligence Agreement
L only provided for the eventualities of either refund of the Earnest Money if L
the Plaintiff promptly informed the Defendant that the result of the due
M M
diligence investigation was unsatisfactory and the Plaintiff had decided not
N to complete the sale and purchase of the shares or appropriation of the N
Earnest Money towards payment of the deposit or part-payment for the
O O
Target Shareholding if the Plaintiff should decide to proceed with the
P transaction. P
Q Q
8. Given that the parties have failed to reach agreement on the
R essential terms necessary to form a binding contract for the sale and R
purchase of the majority shareholding offered for sale by the Defendant, the
S S
Earnest Money could not be appropriated to its intended use, with the result
T that the money is returnable to the Plaintiff either as money had and received T
U U
V V
A A
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B B
(at common law) or as money held on a resulting trust for the Plaintiff
C C
(in equity) when its designated purpose could no longer be fulfilled.
D D
9. There is no dispute that if the Plaintiff succeeds on this
E E
argument, there would be no need to consider the subsequent question of
F whether the Earnest Money is refundable under the terms of the F
Due Diligence Agreement.
G G
H 10. The Defendant’s case is diametrically opposite to the Plaintiff’s. H
It is the Defendant’s case that the Plaintiff and the Defendant reached a
I I
binding oral agreement in mid or late January 2015 whereby the Plaintiff
J agreed to purchase the Target Shareholding at the price of HK$418,000,000 J
and, subject to the Plaintiff’s satisfaction of the result of the due diligence
K K
exercise, the acquisition was to be completed no later than 18 February 2015.
L L
11. The Plaintiff and the Defendant subsequently executed the
M M
Due Diligence Agreement, which provided that the Plaintiff should pay the
N Earnest Money to the Defendant as security for conducting the due diligence N
investigation into the Target Company and earnest money for its
O O
performance of obligations under the binding oral agreement. It was
P further provided that the due diligence exercise was to take place between P
2 and 6 February 2015. The Plaintiff was obliged to inform the Defendant
Q Q
of whether it was satisfied with the results of the due diligence exercise
R within 7 days thereafter, ie, on or before 13 February 2015. R
S S
12. If the Plaintiff was satisfied, the Earnest Money became non-
T refundable and would be applied as part of the purchase price. If the T
U U
V V
A A
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B B
Plaintiff was not satisfied, the Plaintiff could exit the transaction and obtain
C C
a refund of the Earnest Money within 3 days.
D D
13. By obvious and/or necessary implication, the Earnest Money
E E
was only refundable if the Plaintiff communicated its reasonable
F dissatisfaction in good faith to the Defendant within 7 days from the F
conclusion of due diligence investigation. Otherwise, the Plaintiff would be
G G
deemed to be satisfied with the due diligence investigation and have elected
H to proceed with the transaction. H
I I
14. Even if the Plaintiff could not complete the due diligence
J exercise before 6 February 2015 as a result of the Defendant’s alleged failure J
to procure the Target Company to provide all necessary information on time,
K K
such scenario would only give rise to a postponement of the commencement
L of the 7-day period for the Plaintiff to opt out of the transaction upon the L
completion of the due diligence exercise. It would not thereby set the 7-day
M M
period at large.
N N
15. The Plaintiff had never informed the Defendant of its alleged
O O
dissatisfaction (and none of the purported grounds were reasonable in any
P event) after conducting the due diligence investigation or opted for the P
refund of the Earnest Money and the termination of the binding oral
Q Q
agreement under the Due Diligence Agreement.
R R
16. Instead, the Plaintiff had elected and re-confirmed its election
S S
to complete the transaction, and repeatedly asked the Defendant to postpone
T the completion date as the Plaintiff was unable to arrange funding in time to T
complete the transaction.
U U
V V
A A
- 8 -
B B
17. After granting the Plaintiff multiple extensions of time, the
C C
Plaintiff admitted that it was unable to complete the transaction on the final
D extended completion date, viz, 20 March 2015, or the ultimatum period D
granted by the Defendant, viz, 23 March 2015. The reason given by the
E E
Plaintiff to the Defendant was the former’s inability to arrange funds on time.
F As a result, the Defendant refused to further extend the completion date and F
accepted the Plaintiff’s repudiation of the binding oral agreement and
G G
forfeited the Earnest Money on 20 March 2015.
H H
18. Given that the Plaintiff has wrongfully repudiated the binding
I I
oral agreement, the Plaintiff has no right to demand the refund of the Earnest
J Money after the same was forfeited by the Defendant on 20 March 2015 and J
upon his acceptance of the Plaintiff’s repudiation.
K K
L 19. I am of the view, and the parties agree, that the most critical L
issue in the present case is whether there is a binding oral agreement between
M M
the Plaintiff and the Defendant or not. For if there is no binding oral
N agreement, there can be no repudiation on the part of the Plaintiff. If there N
is a binding oral agreement, the Court needs to analyse which party has
O O
breached the same and the corresponding consequential relief.
P P
B. ORAL AGREEMENT
Q Q
20. The parties’ case on the binding oral agreement is diametrically
R R
opposite to each other. Mr Jia on behalf of the Plaintiff gave evidence to
S this Court and repeated his testimony that he only agreed to some general S
directional terms with the Defendant in the January 2015 Meeting but no
T T
concluded agreement was ever reached. His case is that pending the due
U U
V V
A A
- 9 -
B B
diligence exercise, in particular, an assessment of the assets and liabilities
C C
position of the Target Company, it was impossible that he would have
D agreed to any concrete price, let alone HK$418 million, at the first meeting D
in January.
E E
F 21. The Defendant’s case is that, as an experienced businessman, F
if no price was ever agreed, he would not even allow the Plaintiff to carry
G G
out the due diligence exercise. The due diligence exercise was premised
H upon an agreed price at HK$418 million. H
I I
C. APPROACH TO ASSESSING ORAL TESTIMONY
J J
22. In Lee Fu Wing v Yan Paul Po Ting [2009] 5 HKLRD 513,
K Deputy High Court Judge Au (as he then was) at p 524 helpfully set out the K
well-established approach on assessment of witnesses as follows:
L L
M (1) whether the party’s case is inherently plausible or implausible; M
N
(2) whether the party’s case is, in a material way, contradicted by N
other evidence (documentary or otherwise) which is undisputed
O or indisputable; O
P
(3) where it is shown that a witness has been discredited over one P
or more matters to which he has given evidence using the above
Q tests. This is relevant to the assessment of his overall Q
credibility; and
R R
(4) the demeanour of the witnesses.
S S
23. Lord Bingham in his book The Business of Judging at pp 5 – 6
T T
insightfully said:
U U
V V
A A
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B B
“Let me then turn to the central questions. Faced with a conflict of
C evidence on an issue substantially effecting the outcome of an C
action, often knowing that a decision this way or that will have
momentous consequences on the parties’ lives or fortune, how
D D
can and should the judge set about his task of resolving it?
How is he to resolve which witness is honest and which dishonest,
E which reliable and which unreliable? How, as between E
competing experts in a field not his own, is a judge to determine
where the truth lies? Is our existing way of resolving expert
F conflicts the best way? I shall begin by considering the F
resolution of issues of primary fact, the choice between first-hand
G
eye-witnesses. Then I shall turn to expert evidence. G
The normal first step in resolving issues of primary fact is, I feel
H sure, to add to what is common ground between the parties H
(which the pleadings in the action should have identified, but
often do not) such facts as shown to be incontrovertible.
I In many cases, letter or minutes written well before there was any I
breath of dispute between the parties may throw a very clear light
J on their knowledge and intentions at a particular time …. J
The most compendious statement known to me of the judicial
K process involved in assessing the credibility of an oral witness is K
to be found in the dissenting speech of Lord Pearce in the House
of Lords in Onassis v Vergottis. In this he touches on so many
L L
of the matters which I wish to mention that I may perhaps be
forgiven for citing the relevant passage in full:
M M
‘Credibility’ involves wider problems than mere ‘demeanour’
which is mostly concerned with whether the witness appears to
N be telling the truth as he now believes it to be. Credibility covers N
the following problem. First, is the witness a truthful or
untruthful person? Secondly, is he, though a truthful person,
O O
telling something less than the truth on this issue, or, though an
untruthful person, telling the truth on this issue? Thirdly, though
P he is a truthful person telling the truth as he sees it, did he register P
the intentions of the conversation correctly and, if so, has his
memory correctly retained them? Also, has his recollection
Q Q
even subsequently altered by unconscious bias or wishful
thinking or by over-much discussion of it with others?
R Witnesses, especially those who are emotional, who think that R
they are morally in the right, tend very easily and unconsciously
to conjure up a legal right that did not exist. It is a truism, often
S used in accident cases, that with every day that passes the S
memory becomes fainter and the imagination becomes more
T
active. For that reason a witness, however honest, rarely T
persuades a Judge that his present recollection is preferable to
that which was taken down in writing immediately after the
U U
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A A
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B B
accident occurred. Therefore, contemporary documents are
C always of the utmost importance. And lastly, although the C
honest witness believes he heard or saw this or that, is it so
improbable that it is on balance more likely that he was mistaken?
D D
On this point it is essential that the balance of probability is put
correctly into the scales in weighing the credibility of a witness.
E And motive is one aspect of probability. All these problems E
compendiously are entailed when a Judge assesses the credibility
of a witness; they are all part of one judicial process. And in the
F process contemporary documents and admitted or F
incontrovertible facts and probabilities must play their proper
G
part. G
Every judge is familiar with cases in which the conflict between
H the accounts of different witnesses is so gross as to be H
inexplicable save on the basis that one or some of the witnesses
are deliberately giving evidence which they know to be untrue.
I There are, no doubt, witnesses who follow the guidance of the I
Good Soldier Sveyk that ‘The main thing is always to say in court
J what isn’t true,’ as a matter of principle, but more often dishonest J
evidence is likely to be prompted by the hope of gain, the desire
to avert blame or criticism, or misplaced loyalty to one or other
K of the parties. The main tests needed to determine whether a K
witness is lying or not are, I think, the following, although their
relative importance will vary widely from case to case:
L L
(1) the consistency of the witness’s evidence with what is
M agreed, or clearly shown by other evidence, to have M
occurred;
N (2) the internal consistency of the witness’s evidence; N
(3) consistency with what the witness has said or deposed on
O O
other occasions;
P (4) the credit of the witness in relation to matters not P
germane to the litigation;
Q (5) the demeanour of the witness. Q
The first three of these tests may in general be regarded as giving
R a useful pointer to where the truth lies. If a witness’s evidence R
conflicts with what is clearly shown to have occurred, or is
S internally self-contradictory, or conflicts with what the witness S
has previously said, it may usually be regarded as suspect.
It may only be unreliable, and not dishonest, but the nature of the
T case may effectively rule out that possibility.” (Emphasis added). T
U U
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A A
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B B
24. I find the above guidelines helpful and will apply the same in
C C
assessing the credibility of the Plaintiff and the Defendant’s respective case.
D D
25. Having heard the oral testimony of the witnesses and having
E E
regard to the contemporaneous documents and the parties’ submissions, I
F am of the view that the parties did not conclude any binding oral agreement F
in January 2015 Meeting. I come to this view for a number of reasons.
G G
H 26. First, it is not disputed that there is no written agreement which H
record the terms of the alleged oral agreement. It is strange that the parties
I I
see fit not to have a written contract for a transaction in the size of
J HK$418 million but yet decided to have a written contract for the due J
diligence exercise.
K K
L 27. There is not even a term sheet and any formal documents to L
evidence a transaction of such magnitude. Mr Yin for the Plaintiff
M M
submitted that it is inherently improbable that the parties would see fit to
N sign a written Due Diligence Agreement without at the same time at least N
recording the essential terms of the oral agreement in a written memorandum
O O
if a prior binding oral agreement had indeed been concluded. I agree.
P P
28. Secondly, I am of the view that the wording of the
Q Q
Due Diligence Agreement actually shows that there is no concluded binding
R oral agreement between the parties. The Due Diligence Agreement R
provides that:
S S
T “鉴于： T
一、 甲方系刘超成及其直接或间接持有的公司 (以下统称
U U
V V
A A
- 13 -
B B
“目标公司”)。
C C
二、 乙方系一家香港注册的有限公司，拟收购上述甲方所
D
持有的目标公司股权。 D
三、 乙方拟收购甲方所持有目标公司股权，并需对目标公
E 司作相应的尽职调查，并据调查结果决定是否继续完 E
成收购。
F F
基于上述情况，现甲、乙双方经友好协商，就上述收购项目
以之尽职调查事宜，达成一致协议如下：
G G
一、 上述目标公司尽职调查期限为 2015 年 2 月 2 日至
H 2015 年 2 月 6 日。 H
I
二、 甲方对乙方在尽职调查中所提出的问题应予以协助 I
解决及解答，以帮助乙方在尽职调查期间内完成全面
细致的调查工作。
J J
本协议签订后三日内，乙方须将人民币 2000 万元支付到甲
K 方如下指定银行收款账号 (账号：41010900040033218，户名： K
深圳市小夜曲贸易有限公司，开户银行：中国农业银行深圳
L 人民北路支行)，该款项作为上述目标公司收购项目的尽职调 L
查保证金及诚意金。尽职调查期限届满 7 日内，乙方须通知
甲方上述目标公司股权收购项目的尽职调查结果是否满意
M M
以及是否决定继续完成全部收购项目。若乙方尽职调查结果
为满意，则上述人民币 2000 万元保证金及诚意金自动转为
N N
项目收购支付价款的一部分；约乙方尽职调查结果为不满意，
则甲方须按乙方指示，在三日内无条件将上述人民币 2000 万
O 元保证金及诚意金退回至乙方指定账户。” (Emphasis added) O
P P
29. I agree with Mr Yin for the Plaintiff that the word “拟” means
Q Q
“intended” or “proposed”. That defeats any argument that the parties have
R reached any binding oral agreement in the January 2015 Meeting. For if R
the parties did conclude a binding oral agreement, it is inexplicable as to
S S
why the parties would use the word “拟”. It is true that the Due Diligence
T Agreement was drafted by the Plaintiff’s side, but there is no dispute that T
the Defendant, a seasoned businessman, read and signed the Due Diligence
U U
V V
A A
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B B
Agreement to signify his consent to the content of the Due Diligence
C C
Agreement.
D D
30. Mr Yin for the Plaintiff is right that if the parties had reached a
E E
binding oral agreement and the price of HK$418 million had been agreed,
F there is no reason why the terms of the oral agreement were not recorded in F
the recital of the Due Diligence Agreement. Instead, the recital
G G
specifically and deliberately records a proposed or intended transaction.
H H
31. It is obvious to the Court that the parties were careful not to
I I
state or have any documents to record any binding agreement, oral or
J otherwise, for the Plaintiff to purchase 51.44% of the Target Company. J
The word “拟” was chosen and used deliberately and for a purpose.
K K
L 32. Thirdly, in the context of the present case, if a binding oral L
agreement had been reached in January 2015, it would most likely have
M M
triggered a general offer obligation on the part of the Plaintiff. The price
N having been agreed in a binding agreement has to be announced. If such N
an agreement had been reached or concluded, it is difficult to understand
O O
why the same needs not be disclosed through the Hong Kong Stock
P Exchange. There is no dispute that no such announcement was ever made. P
Q Q
33. Further, if such a binding oral agreement had been reached, it
R would mean that the due diligence exercise would be superfluous or R
meaningless as a general offer would have to be made on the basis of the
S S
agreed price. Also there would not be much point in finding out the assets
T T
U U
V V
A A
- 15 -
B B
and liabilities position of the Target Company as the price would have been
C C
fixed and announced.
D D
34. Insofar as the mandatory general offer is concerned, such
E E
requirement is provided in Rule 26 of the Codes on Takeovers and Mergers
F and Share Buy-Backs (“Rule 26”). The key features of Rule 26 as relevant F
to the present proceedings are as follows:
G G
H (1) Subject to the granting of a waiver by the Securities and Futures H
Commission, when any person who acquires, whether by a
I I
series of transactions over a period of time or not, 30% or more
J of the voting rights of a listed company, that person shall J
extend offers, on the basis set out in this Rule 26, to the holders
K K
of each class of equity share capital of the company whether
the class carries voting rights or not (Rule 26.1(a)).
L L
(2) The general offer made under Rule 26 must be in cash or be
M M
accompanied by a cash alternative at not less than the highest
price paid by the offeror during the offer period and within
N N
6 months prior to its commencement (Rule 26.3(a)).
O O
(3) The Codes on Takeovers and Mergers and Share Buy-Back
(“the Codes”) do not have the force of law, but those who wish P
P
to take advantage of the securities markets in Hong Kong
Q should conduct themselves in accordance with the Codes. Q
Otherwise, they may find, by way of sanction, that the facilities
R R
of such markets are withheld in order to protect the interests of
S those who participate in Hong Kong’s securities markets. S
(§§1.3, 1.4 of the Introduction to the Codes).
T T
U U
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A A
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B B
35. Mr Chan for the Defendant submitted that as apparent from
C C
Rules 26.1 and 26.3, the obligation to make a mandatory general offer to
D other shareholders arises subsequent to the offeror’s acquisition of voting D
rights of over 30%. It has always been the Plaintiff’s case that from the
E E
very beginning, the Plaintiff’s intention was to acquire a controlling stake in
F a listed company in Hong Kong, by virtue of which, a mandatory general F
offer is a must and inevitable under the Codes.
G G
H 36. However, it is important to note that the above submission is H
contrary to Mr Jia’s evidence. Mr Jia’s evidence is that the idea of a
I I
mandatory offer was raised but the Defendant suggested to him that the
J Plaintiff could in fact avoid a general offer by receiving the Target J
Shareholding through a few nominees. The Plaintiff did not agree to make
K K
a mandatory offer during the January 2015 Meeting. I find Mr Jia’s
L evidence to be credible as it sits well with the contemporaneous documents. L
M M
37. In a draft agreement for the sale of 26.87% of the shareholding
N of the Target Company to the Plaintiff by Costrade Group Limited and N
3 other unnamed shareholders prepared by Messrs. Troutman Sanders dated
O O
9 March 2015 with comments from TC & Co (acting for the Defendant)
P dated 2015, it shows that the intended sale was for a shareholding less than P
30% so as to avoid the triggering of the general offer obligations.
Q Q
This does not sit well with the Defendant’s oral testimony that the idea of a
R mandatory offer was agreed from the very beginning during the R
January 2015 Meeting.
S S
T T
U U
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A A
- 17 -
B B
38. Further, in a letter dated 27 January 2015 from Messrs.
C C
Troutman Sanders to the Plaintiff, it was also recorded that the instruction
D was to assist in the acquisition of not more than 30% shareholding of the D
Target Company. Had an agreement been reached on making a mandatory
E E
general offer, such step would have been unnecessary.
F F
39. Hence, I accept Mr Jia’s evidence that he was uncertain about
G G
the idea of holding part of the Target Shareholding through some nominees
H and he asked Mr Simon Chiu to study the same and report back to him. H
Indeed, the idea of a mandatory general offer came much later when the
I I
Plaintiff under the advice of Mr Simon Chiu decided not to violate any rules
J of the Codes. J
K K
40. I therefore reject the Defendant’s oral testimony that the parties
L had agreed to go down the route of a mandatory general offer during the L
January 2015 Meeting. If that had been the agreement, it would have been
M M
detailed in the Defendant’s witness statement. Also, it is inconsistent with
N the draft agreement for the Plaintiff to acquire the 26.87% of the N
shareholding of the Target Company and the specific instructions given to
O O
Messrs. Troutman and Sanders to acquire not more than 30% of the
P shareholding of the Target Company. This also impacts on the Court’s P
assessment of the overall credibility of the Defendant.
Q Q
R 41. I also agree with Mr Yin for the Plaintiff that the fact that those R
representing the Defendant had subsequently sought, albeit unsuccessfully,
S S
to procure the Plaintiff to enter into written agreements for the sale and
T purchase of separate blocks of shares from different individuals (who T
U U
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A A
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B B
together held 51.44% of the Target Company) is inconsistent with the
C C
assertion that there was already in existence a binding oral agreement for the
D purchase of 51.44% from the Defendant. D
E E
42. Mr Yin for the Plaintiff also submitted that it cannot make any
F difference that the Plaintiff was allegedly aware that the shares were not held F
in the Defendant’s own personal name because if the alleged oral agreement
G G
was already in place the obligation would be owed by the Defendant to the
H Plaintiff to procure the individual shareholders to transfer their shares which H
the Defendant had agreed to sell to the Plaintiff upon completion and it is
I I
not only unnecessary but it would not have made any sense for the Plaintiff
J to enter into direct contractual relationship individually with each those J
actually holding the shares to acquire several blocks of minority
K K
shareholdings with the attendant problem of having to find a mechanism to
L ensure that the Plaintiff would not be stuck with a minority shareholding. L
Whatever may have been said or not said at the meeting between Mr Jia and
M M
the Defendant in early January 2015, the fact that the parties were
N negotiating for the Plaintiff to enter into written agreements for the sale and N
purchase of separate blocks of shares from the individuals in whose name
O O
were registered is strongly indicative that the parties had always intended
P P
that any binding contractual obligations would arise only upon the signing
Q
of the written agreements with the registered shareholders. It follows that Q
even if the figures of HK$418 million had been thrown about at the meeting
R R
as a price at which the parties might be prepared to strike a deal, it could not
S
have been intended to give rise to a binding oral agreement for the sale of S
51.44% shareholding in the Target Company. I agree.
T T
U U
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A A
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B B
43. Further, I also note that the aforesaid draft agreement contains
C C
a clause which stipulates that the Earnest Money were to be treated as a part
D payment of the purchase price of the 26.87% of the shareholding of the D
Target Company.
E E
F 44. Fourthly, I observe that for the sale of 26.87% of the F
shareholding of the Target Company, the price was not even stated in the
G G
draft document. I agree with Mr Yin for the Plaintiff that if the price of
H HK$418 million had indeed been agreed, there is no reason why an agreed H
price would not have been stated in the draft legal document.
I I
The irresistible inference is that the parties have not yet finalized the price
J in March 2015. J
K K
45. Fifthly, it is the Defendant’s own case, during his oral
L testimony, that the price of HK$418 million comprises of two elements, L
namely, the value of the listing status (commonly known as the “shell price”)
M M
at HK$288 million and the net asset value at HK$130 million. However,
N the net asset value could be adjusted upon the conclusion of the due N
diligence exercise. Given that the net asset value was yet to be ascertained,
O O
it cannot be right that the parties had already agreed on a purchase price at
P HK$418 million during the January 2015 Meeting. P
Q Q
46. Sixthly, the Defendant informed this Court that in fact he was
R not the beneficial owner of 51.44% of the shareholding of the Target R
Company but that he had authority to sell the 51.44% shareholding of the
S S
Target Company on behalf of two gentlemen, namely, Mr Chan Hing Ping
T T
U U
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A A
- 20 -
B B
and Mr Richard John Siemens. This does not sit well with the terms of the
C C
Due Diligence Agreement.
D D
47. The Defendant said that “Mr Jia agreed on behalf of the
E E
Plaintiff to purchase and I agreed to sell 51.44% of the shareholding in the
F Target Company (“Target Shareholding”) at the price of HK$418,000,000. F
Mr Jia was fully aware of the fact that I was not holding any shares of the
G G
Target Company at the time but would procure the Target Shareholding
H from the several shareholders owning the same”. (Paragraph 3(a) of the H
Defendant’s Witness Statement) (Emphasis added)
I I
J 48. What the Defendant did not say in his witness statement was J
that the Target Shareholding was in fact owned by two individuals and he
K K
had full authority to enter into the oral agreement on their behalf including
L concluding a price at the January 2015 Meeting. L
M M
49. I find this difficult to understand because if the Defendant
N indeed had had authority to enter into the oral agreement, there would be no N
need for him “to procure the Target Shareholding from the several
O O
shareholders owning the same”. No procurement would be required as the
P Defendant would have full authority to enter into a binding oral agreement P
to sell the Target Shareholding.
Q Q
R 50. Further, if Mr Richard John Siemens had given full authority R
to the Defendant to sell his shareholding to the Plaintiff and a deal was
S S
concluded at the January 2015 Meeting, there is no reason why the same
T information was not communicated to Mr Richard John Siemens around the T
same time. If that information had been communicated, it is inexplicable
U U
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A A
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B B
why Mr Richard John Siemens would then have sold his shareholding to six
C C
other individual shareholders before the completion of the due diligence
D exercise. I am of the view that it could only mean that no binding oral D
agreement was reached in the January 2015 Meeting. Hence, Mr Richard
E E
John Siemens saw fit to sell his shareholding to other individuals without
F letting the Plaintiff know or obtaining the Plaintiff’s consent. F
G G
51. The Defendant said that he could have procured the six
H individuals to transfer their shareholding to the Plaintiff. That may or may H
not be the case but the fact is that the liberty to sell on the part of Mr Richard
I I
John Siemens to the six individuals tends to show that no binding agreement
J was concluded by the Defendant on behalf of Mr Chan Hing Ping and J
Mr Richard John Siemens.
K K
L 52. Mr Yin for the Plaintiff submitted that the Defendant’s L
testimony that the 51.44% shareholding of the Target Company was
M M
beneficially owned by Mr Richard John Siemens and Mr Chan Hing Ping
N and that although in entering into the alleged binding oral agreement, the N
Defendant was incurring a personal liability towards the Plaintiff to deliver
O O
the Target Shareholding upon completion, the Defendant was in fact selling
P as the duly authorized agent of the two gentlemen as his undisclosed P
principals is not only directly contradicted by what was expressly stated in
Q Q
the recital to the Due Diligence Agreement where the vendor was described
R as the Defendant and his directly or indirectly held companies, but R
completely at odds with the conduct of Mr Richard John Siemens who is
S S
recorded as having transferred the shares registered in his name to not less
T T
than six different individuals. I agree.
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53. Mr Yin for the Plaintiff further submitted that under cross-
C C
examination, the Defendant was categorical in testifying that those six
D individuals were genuine purchasers at arms-length (as opposed to nominees D
for the two gentlemen) but he was unable to provide any or any convincing
E E
explanation as to why Mr Richard John Siemens would have sold the same
F shares again to someone else after the Defendant acting with his authority F
had already come to a prior binding oral agreement with the Plaintiff for the
G G
sale of those shares some 8 to 10 days previously or how the Defendant’s
H authority to sell the shares was supposed to enable the Defendant to procure H
delivery of the shares upon conclusion of the oral agreement if they had
I I
already been sold by Mr Richard John Siemens to the six individuals prior
J to the completion date. I also agree. J
K K
54. Mr Yin for the Plaintiff is also right in submitting that the sale
L by Mr Richard John Siemens before the completion date would have L
rendered nugatory the Defendant’s authority to sell and put it out of the
M M
Defendant’s power to deliver those shares to the Plaintiff upon the
N completion of the oral agreement. There is no escape from the conclusion N
that if the Defendant’s testimony that the six individuals were genuine
O O
purchasers at arms-length were true, then in the absence of anything to
P P
suggest that Mr Richard John Siemens was deliberately seeking to renege
Q
on the deal with the Plaintiff, the proper inference to be drawn from the sale Q
to the six individuals by Mr Richard John Siemens is that he had never
R R
authorized the Defendant to sell the shares for him. Hence, there can be no
S
binding oral agreement in January 2015. S
T T
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55. Seventhly, it is the Defendant’s oral testimony that no oral
C C
agreement would be concluded unless and until Mr Jia of the Plaintiff and
D Mr Chan Hing Ping shook hands and they did in a dinner immediately D
following the January 2015 Meeting. However, there is no evidence or
E E
suggestion that Mr Jia of the Plaintiff ever shook hands with Mr Richard
F John Siemens. The Defendant’s answer, during the cross-examination, is F
that Mr Chan Hing Ping represented Mr Richard John Siemens as well. I
G G
find this hard to believe because there is no evidence or suggestion that
H Mr Richard John Siemens gave any authority to Mr Chan Hing Ping to H
conclude any deals on his behalf. Further, the evidence suggests that
I I
Mr Richard John Siemens knew nothing about the January 2015 Meeting.
J J
56. Eighthly, in a document entitled “ 介紹及協調服務協議 ”,
K K
clause 4.1 provides that:
L L
“4.1 若選定賣方達成對購入控制性股權有法律約束力的買
M M
賣協議或成功購入控制性股權，甲方支付介紹費予乙
方，介紹費為 600 萬港幣。” (Emphasis added)
N N
O 57. There is no evidence that Ms Zhang ever demanded the O
Plaintiff for the sum of HK$6,000,000 or that the Plaintiff had paid Ms
P P
Zhang the sum of HK$6,000,000. If indeed a legally binding sale and
Q purchase agreement had been reached, it would be strange if Ms Zhang did Q
not demand or chase the Plaintiff for the payment of HK$6,000,000.
R R
S 58. Ninthly, in terms of the WeChat or text messages which the S
Defendant heavily relied upon to evidence the existence of a binding oral
T T
agreement, I agree with Mr Yin for the Plaintiff that given that the Court is
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dealing with informal text messages and having regards to the innate
C C
ambiguities and nuances of some of the expressions, the Court should be
D slow to accept the out-of-context meanings attributed by the Defendant to D
the words used. For example, when Mr Simon Chiu sent a text message to
E E
Ms Zhang stating “確認一下作價問題”, the phrase could not be understood
F as simply seeking re-confirmation of the price already agreed as the words F
G
“問題” can also suggest that the price was still not settled. Also the words G
“錢的問題” could have properly been understood to refer to the funds
H H
required for a general offer and not the agreed price for the purchase of
I 51.44%. I
J J
59. The words “是否决定继续完成全部收购项目” in the Due
K Diligence Agreement equally cannot bear only one meaning, viz, a binding K
oral agreement had already been concluded prior to the signing of the Due
L L
Diligence Agreement. I agree that those words are also apt to describe a
M situation where there is not yet in existence any binding oral agreement and M
the Plaintiff would decide whether to proceed with the transaction in light
N N
of the outcome of the due diligence exercise.
O O
60. Similarly, the phrases used by Mr Simon Chiu in his
P P
communication with Ms Zhang and the Defendant which might carry the
Q meaning that the price of the acquisition had been agreed have to be read in Q
context. Mr Simon Chiu has given his explanations in his witness statement
R R
to which I accept.
S S
61. In general, I find Mr Jia and Mr Simon Chiu’s evidence
T T
credible. Mr Jia is very consistent that during the January 2015 Meeting,
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A A
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only some directional issues were agreed but the concrete price and methods
C C
of acquisition have to be agreed after the completion of the due diligence
D exercise. He agreed that the issue of the Listing Value was raised and D
discussed. Mr Chan for the Defendant submitted that Mr Jia has conceded
E E
in his evidence that he may have agreed to the price proposed by the
F Defendant after the Defendant had reduced the Listing Value to HK$288 F
million. However, I agree with Mr Yin for the Plaintiff that when Mr Jia
G G
uttered the words “有可能有講過” he was referring to the Defendant’s offer
H H
to lower the Listing Value to HK$288 million, and when Mr Chan
I
subsequently put to Mr Jia that he had agreed to buy the shares at the price I
of HK$288 million subject to satisfactory due diligence results, Mr Jia’s
J J
answer was “我沒有必要提早去同意這個”. I find his evidence credible.
K K
62. Also when Mr Jia testified that a difference of HK$30 million
L L
in the asset value of the Target Company was not material to him, it cannot
M be taken to mean that he actually agreed to the Defendant’s case that the M
asset value is HK$130 million. I am of the view that what he meant was
N N
that if there was a different of HK$30 million after the due diligence exercise,
O that by itself would not be a deal breaker. O
P P
63. Mr Simon Chiu’s evidence is also consistent. His evidence is
Q basically that he did not participate in the January 2015 Meeting and Q
therefore did not know what happened during the meeting. He was there to
R R
assist Mr Jia of the Plaintiff to carry out the due diligence exercise and to
S make sure that the transaction could go through legally and effectively. S
I find his evidence that he first found the idea of avoiding the general offer
T T
obligation doggy but went along with it initially credible. He subsequently
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advised the Plaintiff to go for a mandatory general offer. This is consistent
C C
with the timetables prepared by Hoitong.
D D
64. Mr Yin for the Plaintiff submitted that the text message sent by
E E
Mr Simon Chiu on 17 March 2015 to promise that the transaction would be
F completed as soon as possible is equivocal both as to whether a binding oral F
agreement for the sale and purchase of the shares had already been
G G
concluded and as to whether there were any outstanding issues raised in the
H due diligence exercise which remained unresolved. Mr Yin further H
submitted that properly understood in its context, it was no more than a
I I
statement of reassurance that the Plaintiff remained in earnest. It cannot
J be understood as an admission by the Plaintiff that there was in existence a J
binding oral agreement or that the due diligence problems have been
K K
resolved. I agree.
L L
65. On the contrary, I find the Defendant’s evidence less credible.
M M
For example, his oral evidence that the parties had agreed to go for
N mandatory offer in the January 2015 Meeting was not mentioned in his N
witness statements. It is also contradicted by the contemporaneous
O O
documentary evidence.
P P
66. His evidence that he had full authority from Mr Richard John
Q Q
Siemens to sell his 24.57% of the shareholding of the Target Company is
R flatly contradicted by Mr Richard John Siemens’ sale of his shareholding to R
six purchasers. The Target Company’s announcement dated 31 March
S S
2015 makes this point clear. On the contrary, the Target Company had not
T made any announcement that Mr Chan Hing Ping had entered into any T
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A A
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binding agreement to sell his 26.87% of the shareholding in the Target
C C
Company to the Plaintiff.
D D
67. Further, when being cross-examined on the need to enter into
E E
separate written agreement with different registered owners of the Target
F Shareholding, the Defendant for the first time, in oral testimony, said that it F
was the idea of Ms Zhang who at her own initiative tried to preserve for the
G G
Plaintiff the possibility of avoiding the obligation to make a general offer by
H disguising the acquisition of a 51.44% shareholding by splitting it up into H
several transactions. I find that explanation to be incredible. First, it is
I I
against the Defendant’s own evidence that there was an agreement that the
J acquisition would be by way of a mandatory offer during the January 2015 J
Meeting. Secondly, given the agreement to go for a mandatory offer, it is
K K
incredible that Ms Zhang would have come up with a plan to avoid the
L general offer obligation on her own initiative. L
M M
68. Still further, the Defendant’s assertion, made for the first time
N in his oral testimony, that the obligation to pay over a forfeitable deposit had N
been discussed at the first meeting when the asserted binding oral agreement
O O
was concluded, is, in my view, hard to believe. Mr Yin for the Plaintiff
P submitted that the assertion is not consistent with the Defendant’s pleaded P
case (§5 of the Re-Amended Defence) and it is inconceivable that the
Q Q
Defendant’s case would have been pleaded in that way if what is being
R asserted is true. R
S S
69. Additionally, I also accept Mr Yin’s submission that the
T Defendant’s testimony during cross-examination that the figure of HK$418 T
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B B
million had resulted from a counter-offer from Mr Jia is incredible. It is
C C
inconsistent with paragraph 4(a) of the Defendant’s witness statement which
D stated that the Defendant had taken the initiative to lower the listing value D
to HK$418 million in order to incentivise Mr Jia to accept the deal. Further,
E E
the Defendant had retracted the allegation of a counter-offer from Mr Jia in
F re-examination. F
G G
70. Overall, I am of the view that the Court should take into
H account all the factual circumstances into consideration and make its own H
assessment according to established principles. It will be dangerous for the
I I
Court to rely on one or more informal text messages to come to a view as to
J whether a binding oral agreement was reached in the January 2015 Meeting. J
K K
71. I have also taken into consideration the Defendant’s grant of
L time extensions to the Plaintiff to arrange for funds and the fact that the sum L
of HK$450 million was deposited into Haitong on 30 March 2015, but I am
M M
of the view that they are not determinative on whether a binding oral
N agreement was reached in the January 2015 Meeting. They are also N
consistent with the Plaintiff’s intention or efforts to complete an intended
O O
transaction.
P P
72. Finally, I should also mention that I come to the above decision
Q Q
irrespective of which party bears the burden of proof in establishing the
R existence or non-existence of the asserted binding oral agreement as I do not R
find it attractive to decide this case purely on burden of proof. It is also not
S S
necessary to do so as the evidence is quite clear to this Court.
T T
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A A
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B B
73. I also do not find it to necessary to draw any inference, adverse
C C
or otherwise, from the fact that Ms Zhang was not called as a witness in the
D trial. D
E E
F F
D. DISPOSITION
G G
74. For all the reasons stated above, I make an order that the
H Defendant do return the sum of HK$20 million to the Plaintiff forthwith with H
interest at Hongkong and Shanghai Banking Corporation’s prime rate plus
I I
1%.
J J
75. As this Court has come to the factual finding that no binding
K K
oral agreement was reached between the parties, there is no need for this
L Court to deal with other factual disputes of the parties. In Goff & Jones: L
The Law of Unjust Enrichment, 9th Ed., the learned editors at §14-06 state:
M M
“A pre-contract deposit, paid before any binding contract has been
N N
entered, is essentially an expression of seriousness of intention
on the part of the prospective purchaser. It is not subject to the
O same principles as deposits paid at the time of making a contract. O
Part of the basis of payment of a pre-contract deposit is that the
contract will subsequently come into existence. If, therefore, no
P contract materializes, the basis of the payment has failed, and the P
deposit must be returned.” (Emphasis added)
Q Q
R
76. As far as costs is concerned, I make a cost order nisi that the R
Defendant is to pay the costs of and occasioned by the present action
S S
including this trial to the Plaintiff, to be taxed on a party to party basis, if
T not agreed. The above costs order nisi will be made absolute unless the T
parties apply to vary the same within 14 days from the day hereof.
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77. Finally, it remains for this Court to thank Mr Yin for the
C C
Plaintiff and Mr Chan for the Defendant for their helpful assistance.
D D
E E
F F
G G
H H
I I
(William Wong SC)
J
Deputy High Court Judge J
K K
L L
Mr Michael Yin, instructed by Haldanes, for the Plaintiff
M Mr Isaac Chan and Mr Jeff Chan, instructed by Michael Li & Co, for the M
Defendant
N N
O O
P P
Q Q
R R
S S
T T
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