CITY EXPRESS INVESTMENT LTD AND OTHERS v. ZHANG DA WI
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HCA1673/2003
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1673 OF 2003
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| BETWEEN | ||
| CITY EXPRESS INVESTMENT LIMITED (香港城運通投資有限公司) | 1st Plaintiff | |
| FILON INVESTMENT LIMITED (香港飛朗投資有限公司) | 2nd Plaintiff | |
| CHAN CHUN KEUNG (陳進強) | 3rd Plaintiff | |
| and | ||
| ZHANG DA WI (張大衞) | Defendant |
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Before : Mr Recorder A. Chan, SC in Court
Dates of Hearing : 9–12, 15–18 and 23 March 2010
Date of Handing Down Judgment : 7 April 2010
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J U D G M E N T
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1. In this action the plaintiffs sue the defendant (“Zhang”) in respect of three sums of money handed over to him in 2001 and 2002 in connection with a set of legal proceedings taken out by the 1st and 2nd plaintiffs (respectively “City Express” and “Filon”) in the Mainland in 2001. It is the plaintiffs’ case that Zhang was acting as the agent of City Express and Filon at all material times. The 3rd plaintiff (“Chan”) was the controlling shareholder and a director of City Express and Filon. Chan was the person who represented those companies in their dealings with Zhang.
Background
2. I shall set out, firstly, the uncontroversial background to this case. In February 1994, City Express and Filon entered into agreements (“the Agreements”) with a Mainland company, Beijing Xinglong Park Ltd (“Xinglong”) for the purchase of two blocks of apartment in Beijing (“the Properties”) which were to be built (one block was purchased by each of the companies). The entirety of the purchase price, over HK$190 million, was paid by City Express and Filon prior to the completion of the Properties.
3. It appears that the Properties were completed in September 1994. However, Xinglong failed to deliver possession of the same to City Express and Filon or to compensate them in accordance with the terms of the Agreements. Between 1994 and 2000, efforts were made by Chan, acting on behalf of City Express and Filon, to press Mr Choi Sai Leung (“Choi”), the Legal Representative of Xinglong, for the entitlements of those companies under the Agreements. Those efforts were to no avail and Chan was told by Choi that the Properties were wrongfully occupied by the army and for that reason possession of the same could not be delivered to the companies.
4. It is common ground that in 2000 Chan met Zhang through the introduction of Choi. Zhang held himself out as a Mainland lawyer connected with the Legal Advisory Division of the General Political Department of the Chinese People’s Liberation Army (中國人民解放軍總政治部司法局法律顧問處)(“LAD”). Later, on 19 September 2001, a Legal Service Agreement in Chinese (涉外律師業務委托代理協議)(“LSA”) was entered into between City Express, Filon, LAD and one Themis Funds Organization of China (“Themis”) under which LAD and Themis were to assist City Express and Filon to pursue their rights under the Agreements in the Mainland. Pursuant to the LSA, five sums of money were handed over to Zhang by Chan, acting on behalf of City Express and Filon. Three of those payments are the subject matters of this action.
5. Before I deal with the LSA and the payments, I should mention that there are disputes in respect of the dealings between Zhang and Chan prior to the signing of the LSA. In particular, there are disagreements as to who took the initiative in having Zhang help to resolve the Xinglong matter and how a series of documents were prepared and came to be signed by Chan before the LSA. These issues are not central to the dispute before this court. However, they are relevant to the credibility issue on which much is depended in terms of the outcome of this action. I shall deal with those matters below.
6. Going back to the LSA. According to its terms, Themis was appointed as the agent of City Express and Filon to be fully in charge of litigations (including civil and criminal) which might be instituted to enforce the Agreements. Further, according to clause 1, Themis was confirmed by City Express[1] to be the party responsible for the “financial settlement of lawyer’s fee involving foreign matters” (涉外律師經費財務結算機構). LAD was appointed as an agent of City Express and Filon to provide various legal services in connection with their case. The fees payable under the LSA are controversial. They were governed by clause 6 as follows :
“ Cause 6
According to the contract law for lawyers of the People’s Republic of China and the lawyer’s fee standards set by the Ministry of Justice of the People’s Republic of China and with reference to the usual practice adopted in lawyer’s business involving foreign matters, the two Principals and two Agents all confirm as follows: this Agreement shall adopt 10% of the subject matter of the claims and liabilities as lawyer’s fee, being a professional standard. All parties confirm that staring from the date on which this Agreement is signed, the two Principals shall prepay Party A lawyer’s fee deposit in the sum of HK$1,000,000 with the balance of the lawyer’s fee to be settled all in one go after the conclusion of this case.”
「六、 依據中華人民共和國律師法，依據中華人民共和國司法部律師業務收費標準，參照律師涉外業務慣例，委托雙方、受托雙方一致確定：本協議執行債權債務總標底百分之十的代理律師費優惠標準。雙方一致確認：自本協議簽署之日始，委托雙方向受托甲方預付一佰萬港圓律師費定金。其餘律師費在本案終結後一次性全額結算。」
7. Clause 8 of the LSA provided that the agreement was protected by PRC law as well as Hong Kong law, and that it was confidential in nature.
8. Altogether five payments had been made by City Express and Filon to Zhang as follows :
(i) HK$1,000,000 was paid by way of a cashier order dated 11 October 2001. This cashier order was made out to International Finance Debts Law Affair Ltd but it was given to Zhang. With the exception of this payment, all the other payments were made out to Zhang. It is common ground that this was the payment of lawyer’s fee deposit as stipulated under clause 6 of the LSA.
(ii) HK$3,000,000 was paid by way of a cashier order dated 19 October 2001. There is a photocopy of this cashier order on which Zhang had acknowledged this payment and wrote on it “Litigation Security Deposit” (訴訟保証金)(“LSD”)[2].
(iii) HK$2,193,380 was paid by Chan’s personal cheque dated 23 February 2002. It is common ground that this was for the court charges of RMB 2,193,374 which had been paid by LAD on behalf of City Express and Filon.
(iv) HK$2,000,000 was paid by cashier order dated 16 April 2002.
(v) HK$2,055,986 was paid by cashier order dated 6 June 2002. There is a copy of this cashier order on which Zhang had written “Now received from [Chan] 2,055,968.00 litigation fees which had been paid on his behalf” (今收到為陳進強先生墊付之訴訟費)[3].
Payments (ii), (iv) and (v) are in dispute.
9. There is no issue that LAD did provide legal services to City Express and Filon and conducted a number of legal proceedings in the Mainland on their behalf. As a result, a number of Judgments or Orders had been obtained from the Mainland court. Firstly, in November 2001, two sets of proceedings (one for each company) were instituted by LAD in the Higher People’s Court in Beijing, Nos. 247 and 248 of 2001, against Xinglong. On 28 January 2002, two Mediation Orders were obtained under which Xinglong agreed to transfer the Properties to City Express and Filon, pay them compensation and pay for most of the court fees. It appears from these Mediation Orders that Xinglong was represented by one Mr Wong from the Legal Consultation Department of the Air Force of the People’s Liberation Army. This lends support to the suggestion that, as Choi had said to Chan,[4] the Xinglong dispute involved the interest of the military.
10. Subsequently, Xinglong failed to comply with the Mediation Orders. Enforcement proceedings were then instituted by LAD against Xinglong (Nos. 29 and 30 of 2002). During the course of the enforcement proceedings, it was discovered that the Properties were purportedly sold to one Hung Tai Investment and Management Ltd (“Hung Tai”). As a consequence, another two sets of proceedings were instituted against Hung Tai. Those proceedings appear to have been started in about August 2002[5] and concluded in March 2003[6] with the dismissal by the Second Intermediate People’s Court in Beijing of Hung Tai’s appeal against the decision of the Chaoyang District People’s Court in Beijing that the agreements between it and Xinglong for the sale of the Properties were of no effect.
11. Whilst the Hung Tai proceedings were on foot, the enforcement proceedings had to be terminated in November 2002[7].
12. Unfortunately, despite all these legal proceedings City Express and Filon have no success in obtaining possession of the Properties or payment of any compensation under the Agreements. After the conclusion of the Hung Tai proceedings, on 24 March 2003, City Express and Filon applied for the restoration of execution in respect of the Mediation Orders. The application was granted the next day.
13. In the course of the restored enforcement proceedings, City Express and Filon terminated their appointment of LAD. The Notice of Termination (“NT”) was dated 4 April 2004, but it was signed by Mr Yang Hok Man (“Yang”) of the LAD on 7 April 2003.
14. In August 2006, the enforcement proceedings came to a halt once again by reason of the decisions of the Higher People’s Court of Beijing that the cases between City Express, Filon and Hung Tai be retried. The result of the retrial, which took place in 2007, was that the Mediation Orders were cancelled and the claims of City express and Filon against Xinglong were dismissed. It appears from the Judgments[8] that Xinglong did not receive the purchase price for the Properties which was paid to Choi. Choi had by then disappeared and the matters were transferred to the Public Security Bureau (“PSB”) for investigation. The dismissal of the claims of City Express and Filon was without prejudice to their rights to launch further proceedings after the investigation of the PSB. In 2008, the appeals of City Express and Filon against the above Judgments were dismissed.
15. For completeness, I should mention that in 2004 Themis instituted proceedings in the Mainland against City Express and Filon for non-payment of fees under the LSA. Themis lost the action at first instance and its appeal had been dismissed[9] in such a way that Themis is entitled to institute further proceedings against those companies after the conclusion of investigation by the PSB (see para. 15 above). However, on 6 June 2009, Themis lodged a complaint with the Supreme People’s Procuratorate.[10]
The dispute
16. The plaintiffs’ case is that the three disputed payments were obtained by Zhang under fraudulent misrepresentation. It is alleged that Zhang falsely represented to Chan that those payments were required as “reimbursement of costs and expenditure already incurred and paid out by [LAD] on behalf of [City Express] and [Filon]”.[11] As a “further and/or alternative” cause of action, the plaintiffs claim that such misrepresentation constituted the tort of deceit. With respect, it appears that there is a misconception in the plaintiffs’ case. A fraudulent misrepresentation normally constitutes the tort of deceit. In other words, there is one cause of action arising out of the same facts, namely, the tort of deceit (see Bullen & Leake & Jacob’s Precedents of Pleadings, 15th ed., vol. 2, paras. 48-04 and 49-01).
17. In addition, the plaintiffs claim that Zhang was an agent of City Express and Filon and owed them fiduciary duties. The misrepresentation constituted a breach of such duties.
18. In their final submissions, the plaintiffs agreed that if this court accepts that Chan was at all material times acting for City Express and Filon, his claims in this action can be dismissed with no order as to costs.
19. The resolution of these matters depends on (i) whether Zhang was an agent of City Express and Filon and (ii) what was said by Zhang to Chan which procured the disputed payments. As confirmed by the final submissions of Mr Pow SC, who appears for the plaintiffs, and Mr Shieh SC, who appears with Mr Ho for Zhang, the dispute in this case rests solely on the credibility of Chan and Zhang.
Agency
20. With respect, this point is open and shut. There is an abundance of contemporaneous documents in support of the proposition that Zhang was at all material times an agent of City Express and Filon. Very properly, Mr Shieh did not offer any submission to the contrary despite the denial of Zhang.
21. Amongst the documents, there are two Letters of Authorisation dated 28 September 2001 (one executed by each of the companies).[12] By these Letters, City Express and Filon appointed three agents — Mr Kui Wah Kong, Yang and Zhang, all of the LAD, to deal with the litigations concerning the Agreement. Zhang was appointed as the “main agent” (主受托人). The appointments were to last until the resolution of the dispute with Xinglong.
22. In light of these documents, I have no difficulty finding that Zhang was indeed acting as an agent of City Express and Filon at all material times. There is no dispute that in such a position, he owed to those companies fiduciary duties.
Plaintiffs’ evidence
23. In addition to Chan, who was of course the main witness, Mr Chau On Tat Yuen (“Chau”) was called to testify for the plaintiffs. However, Chau’s evidence does not go to the heart of the dispute as he was not present in respect of the dealings which led to the disputed payments. His evidence concerns peripheral matters which may go to the credibility of Chan and Zhang.
24. Chan is a businessman and was the Chairman of a Hong Kong public company called Everbest Century Holdings Ltd until his shares in that company was sold sometime after 2003. He has a degree from Tai Yuen University in water resources. He is also a member of the China People’s Political Consultation Council (“CPPCC”) of the Fujian Province. Despite his positions, with respect, Chan does not strike me as a particularly sophisticated person, although I have no doubt that he is a good businessman and a practical person.
25. Chan’s evidence is that after Zhang was introduced to him, Zhang took the initiative in offering to help him with the Xinglong dispute. On the other hand, it is Zhang’s case that at first he was not inclined to help with the dispute and it was only upon the incessant requests and approaches by Chan that LAD and Themis agreed to assist. Although this is plainly a peripheral matter, it is a point taken seriously by the defence because of Chan’s suggestion that Zhang acted with premeditation to lure him into trusting him and later paying over large sums of money to him. Let me say at once that I am not entirely convinced on the suggested premeditation. Such suggestion is counteracted by the fact that LAD did carry out a considerable amount of work in the Xinglong dispute. However, this is not to say that Zhang might not have exploited his position when he asked Chan for large sums of money.
26. Chan was cross-examined extensively. In my view, certainly fragilities have been exposed in Chan’s evidence and I take them into account in assessing his credibility. Concerning the events of the “early days” prior to the signing of the LSA, I agree with Mr Shieh’s criticisms of Chan’s evidence that, firstly, he had contradicted the plaintiffs’ pleaded case by denying that City Express and Filon had previously engaged a Mainland lawyer, Ms Dai Siu Ling, to sue Xinglong but she was not even able to lodge a claim on their behalf with the Mainland court. Secondly, Chan was not forthcoming with the court about the result of the enquiries made by his colleague, Mr Pu Chi Yen (“Pu”), who was sent to Beijing to find out what was going on and how the rights of City Express and Filon could be pursued.
27. Prior to the signing of the LSA, a large number of documents had come into existence. There is a dispute between the parties as to who caused those documents to be made, in particular the documents for court use and letters of authorisation. It is said by Mr Shieh that Chan’s evidence that they were prepared by Zhang for his signature is incredible because LAD would not have deployed the resources to do so without any commitment that it would be paid. Further, Mr Shieh submits that the suggestion that it was Chan who prepared the documents is more consistent with the fact that Chan was very keen to secure the service of LAD whose military background might help to overcome the obstacle for getting the Properties.
28. This matter again goes largely to general credibility. I am inclined to accept Chan’s evidence in this regard. The documents such as C2 (a “Special Letter of Authorisation”) and E34-6 (a “Criminal Prosecution Report for Commercial Fraud”) are plainly documents drafted by a lawyer. Zhang’s evidence is that he is a Mainland lawyer and such evidence has not been challenged. There is no suggestion in the evidence as to who else could have produced those documents. The LSA was signed in September 2001 but commonsense dictates that Chan and Zhang must have discussed about the Xinglong dispute prior to signing the LSA and it can hardly be surprising for Zhang to start preparing some documents for Chan in anticipation of the LSA. It is more likely than not that those documents were prepared by Zhang (contrary to his evidence) with Chan’s input.
29. Coming to the critical evidence — the circumstances under which the disputed payments were made. According to Chan, in about the beginning of October 2001, he was informed by Zhang that legal proceedings had been instituted by LAD on behalf of City Express and Filon against Xinglong. In doing so, costs and expenses in the nature of court fees “and/or” security money had been paid by LAD on behalf of the companies. Zhang pressed Chan to repay such costs and expenses. As stated in paras. 8(i) and (ii) above, two payments were made by Chan to Zhang in October 2001. In respect of the payment of HK$3 million, Chan’s evidence is that it was for “partial settlement of the alleged costs and expenses by way of court fees already incurred by [LAD] on behalf of [City Express] and [Filon]”.[13]
30. In cross-examination, Zhang’s case was put to Chan. It was suggested that prior to the signing of the LSA, Zhang and Chan discussed about, inter alia, the requirement of a Risk Security Deposit (風險保証金)(“RSD”) to guarantee the truthfulness of Chan’s instructions and to protect against the loss of the lawyers in the event that the instructions were not true (I shall elaborate a little on this loss below). Further, there was a draft of the LSA which contained a reference to RSD in the sum of HK$5 million. It was suggested to Chan that due to his inability to pay the HK$5 million, the RSD requirement was replaced by a guarantee put up by Choi for him (E8-9, which is disputed as to authenticity).
31. Zhang’s case was strongly denied by Chan. He said that there was never any mention of RSD by Zhang at the time and the suggestion only surfaced after the action against him had started. He denied the existence of the suggested draft LSA. He also said that it would be absurd for Choi to guarantee the RSD. When Chan was asked about the acknowledgment of the HK$3 million (“the Acknowledgement”) on which LSD was written (see para. 8(ii) above), he replied that there was discussion between him and Zhang about LSD but it was to be paid to the court. He denied that the HK$3 million was part of the HK$5 million required for RSD. Chan also mentioned in the course of cross-examination that Zhang did discussed with him about Asset Preservation Security Deposit (資產保全保証金). It was to be paid to the court and would not be confiscated. He was indeed asked by Zhang for APS and he used an electricity power station, Longyan Hengfa Electric Industry Co. Ltd, for that purpose.
32. It is right to say that apart from the Acknowledgement, there is no undisputed contemporaneous document on the payment of HK$3 million. By reason of the similarity of terminology, it may be seen that the Acknowledgement is consistent with Zhang’s case.
33. However, with the benefit of a Consolidated Chronology helpfully produced by Mr Shieh and Mr Ho, the following picture emerged. After the signing of the LSA, it was followed by the two Letters of Authorisation dated 28 September 2001 (see para. 22 above) and then the two payments of HK$1 million and HK$3 million on respectively 11 and 19 October 2001. Next, there are two receipts from LAD dated 2 November 2001. One was for the sum of RMB 2,052,750 Litigation Fee (訴訟費) said to be received from Themis who paid it on behalf of (墊資) City Express and Filon. The Litigation Fee was to be paid to the court by LAD acting as the agent of those companies.[14] The other receipt was for the sum of RMB 200,000 Litigation Lawyer’s Fee (訴訟律師費) payable to LAD, again said to be paid by Themis on behalf of those companies.[15] There is another receipt issued by the People’s Liberation Army of China (“PLA”) dated 5 November 2001 in respect of that sum of RMB 200,000 and on which the payment was described as Litigation Payment (訴訟款). It appears that Yang signed on this document.[16] There is a bank record of payment of the sum of RMB 2,052,750 dated 7 November 2001, on which the recipient was stated to be the court.[17] Further, there are two payment notices from the court dated 14 November 2001.[18] Each document called for the payment of RMB 1,096,687 and one was issued to City Express and the other one to Filon. Together, they amounted to RMB 2,193,374, which was for the agreed court charges (see para. 8(iii) above). Mr Pow has submitted, correctly, that these court charges constitute the only payment made to the court which is evidenced by any document. There are two Notices of Acceptance of Case dated 15 November 2001, issued respectively to City Express and Filon by the court.[19] These documents suggest that the cases of these companies were only accepted by the court after payment of the requisite charges.
34. Finally, also dated 15 November 2001, there is a receipt from LAD for the sum of RMB 140,624 which was stated to be paid by Themis on behalf of City Express and Filon for Litigation Fee.[20] It is clear that the court charges of RMB 2,193,374 was made up of this sum plus the sum of RMB 2,052,750 mentioned above.
35. The documentary evidence mentioned in the preceding two paragraphs is not controversial. From these documents one can see that Zhang was put in funds (HK$4 million in total) by City Express and Filon before the court charges were paid and their actions launched. A sum of RMB 200,000 was paid to LAD for its fees prior to the institution of the proceedings. I am unable to see that at the time when the payment of HK$3m was made, there was any money paid by LAD or Themis or Zhang on behalf City Express or Filon.
36. Concerning the other disputed payments, Chan’s evidence is that after the payments totalling HK$4 million were made, he met with Zhang on several occasions to discuss the proceedings against Xinglong. During such meetings, Zhang told him that LAD had incurred further costs and expenses by way of court fees paid on behalf of City Express and Filon and pressed Chan to settle the same. In about early 2002, Zhang told Chan that a judgment in favour of the companies had been obtained in the proceedings and that if they wanted to recover possession of the Properties, Chan had to repay all the outstanding costs and expenses already paid by LAD on behalf of the companies. Three payments totalling HK$6,249,366 were accordingly made to Zhang between February and June 2002 (see paras. 8(iii) to (v) above).
37. Zhang’s case was put to Chan in the course of cross-examination. It was suggested that the HK$2 million was the balance of the HK$5 million required for RSD. As for the last of the disputed payment of HK$2.055 million, Zhang’s case is that it was intended to be the security needed for an Interim Preservation (先予執行) application against Hung Tai.[21] However, that application was refused by the court. As a consequence, the security was not needed and it was agreed between Zhang and Chan that the money be used as part of the legal fees payable under the LSA. Zhang’s case was denied by Chan.
38. Turning to the documents, following from the events of the 15 November 2001 mentioned above, on 28 December 2001, a Settlement Agreement was signed by Chan and Choi representing the companies in question to resolve the Xinglong matter.[22] It is of interest to note that this agreement recorded the fact that Choi had already paid a sum of about HK$141.6 million by various means in partial discharge of Xinglong’s liabilities under the Agreements. Based upon the Settlement Agreement, the Mediation Orders were obtained by City Express and Filon on 28 January 2002 (see para. 10 above).
39. However, shortly after the Settlement Agreement was signed, a problem allegedly arose in connection with the Xinglong proceedings. There are two relevant documents dated respectively 2 and 3 January 2002. The first document is a Claimants’ Statement (訴訟原告証詞), according to which City Express and Filon confirmed their acceptance of a fine of HK$4,860,612 by the court due to inadequacy of their evidence.[23] The other document is a notarised Declaration of City Express and Filon to the same effect.[24]
40. When Chan was cross-examined about this matter he answered as follows :
“This I remember very clearly. My impression is deep. In 2001 Zhang said his organization would definitely recover possession of the properties in 2001. In December 2001, I went to Beijing and Zhang told me that they should have recovered possession but a problem had arisen because we had not told the court about the receipt of HK$140m. As a result, we were fined by the court. Because I had not litigated in the Mainland before, I thought it was true but in fact he cheated me. There was no such fine by the court. He said that “we[25] were negligent in our work” but he asked me to accept the fine and if I did so the properties which were worth a few HK$100m would be recovered. He also said that the money had already been paid by the military and if I did not paid it back he would be in very serious trouble. At the time I trusted him very much and I had no litigation experience in the Mainland. I believed that the fine was true and thought that there was no reason to have other people paying for me. I was also very keen to get back the properties, so I signed [the Claimants’ Statement] and for the HK$4m odd, so be it.”
41. On reflection, it is surprising that there is no court document produced by Zhang which evidence the fine. Although Chan’s evidence about his investigation with the Mainland court is hearsay and self-serving, the lack of document emanating from the court on this matter cause doubt in my mind as to the truthfulness of this fine. Further, I find it very difficult to accept Zhang’s evidence that the drafting or contents of the Claimants’ Statement had nothing to do with him, Themis or LAD. I have not overlooked the fact that the amount of alleged fine was an unusual figure which may suggest that it was arrived at after certain assessment. Clause 4 of that document referred to “punishment in respect of HK$4,860,612 LSD”. Clause 7 referred to the “LSD for 2002”. The contents of this document must have come from Zhang (there is no evidence of other people from Themis or LAD dealing with Chan at the time). Last but not least, there is no mention of this alleged fine in a Joint Declaration which appears to have emanated from Themis (see para. 65 below).
42. The next documents are the Mediation Orders dated 28 January 2002.[26] On 19 February 2002, there was a declaration made by Chan for an enforcement application.[27] On the next day, Chan signed another declaration for criminal prosecution.[28] Then the third of the five payments in the amount of HK$2,193,380 was paid on 23 February 2002. On 15 March 2002, two enforcement decisions were obtained from the Mainland court[29] in favour of respectively City Express and Filon.
43. The next set of documents is of some significance. There were two Certificates of Guarantee dated 15 April 2002 (“the Certificates”) issued respectively by the Board of Directors and the shareholders’ meeting of City Express and Filon.[30] The contents of these documents were practically identical, some of which concerned the payments obligations of those companies and I set them out below :
“Due to financial difficulties, the Guarantor is unable to pay the litigation fee and litigation security deposit in time. According to the undertakings made when the Guarantor sought assistance from the Agent in paying the litigation security deposit on its behalf and confirmed that lawyer’s fee was to be paid all in one go after the conclusion of the case, the Guarantor, on 12 April 2002, convened a Board of Directors meeting, and it was decided that Director CHAN Chun Keung, Director WANG Sui Ying and Director PU Zi Ren were going to sign the Certificate of Guarantee of the Settlement of Debt in relation to Lawyer’s Fee according to law.
I.
According to the Legal Service Agreement signed by both parties, the Agent shall handle the asset preservation civil litigation No. 1119 and the criminal litigation. Under the provisions in the Legal Service Agreement that the lawyer’s fee shall be 10% of the total value of the debt, the Guarantor shall pay the Agent legal service lawyer’s fee deposit in the sum of one million Hong Kong dollars (1,000,000 HKD).
II.
The Agent has paid on behalf of the Guarantor the asset preservation security deposit in a sum of four million eight hundred and sixty two thousand six hundred and twelve Hong Kong dollars (4,862,612 HKD). On 19 October 2001, the Guarantor repaid the Agent three million Hong Kong dollars (3,000,000 HKD) with the outstanding amount being one million eight hundred and sixty two thousand six hundred and twelve Hong Kong dollars (1,862,612 HKD).
III.
The civil mediation cases Nos. 247 and 248, which were validly handled by the Agent according to law have concluded, and two million one hundred and ninety three thousand three hundred and seventy four Hong Kong dollars (2,193,374 HKD) was paid on behalf of the Guarantor. On 23 February 2002, the Guarantor repaid the Agent two million one hundred and ninety three thousand three hundred and seventy four Hong Kong dollars (2,193,374 HKD).
IV.
The Agent has handled the asset preservation enforcement cases Nos. 29 and 30 according to law, and paid asset preservation enforcement security deposit on behalf of the Guarantor in a sum of two million one hundred and ninety three thousand three hundred and seventy four Hong Kong dollars (2,193,374 HKD).
V.
To sum up, the Guarantor in fact has owed the Agent asset preservation security in a sum of one million eight hundred and sixty two thousand six hundred and twelve Hong Kong dollars (1,862,612 HKD) and the amount paid by the Agent on behalf of the Guarantor, when handling the asset preservation enforcement cases Nos. 29 and 30, in a sum of two million one hundred and ninety three thousand three hundred and seventy four Hong Kong dollars (2,193,374 HKD), the total amount of asset preservation enforcement security deposit owed being four million and fifty five thousand nine hundred and eighty six Hong Kong dollars (4,055,986 HKD). The Guarantor (Board of Directors) unanimously confirms that the amount of four million and fifty five thousand nine hundred and eighty six Hong Kong dollars paid by the Agent on its behalf will be repaid all in one go before 16 April 2002.
….
5.
The total value involved in the civil litigation cases Nos. 247 and 248 and the asset preservation enforcement cases Nos. 29 and 30 is three hundred and ninety six million and sixty thousand Hong Kong dollars (396,060,000 HKD). Under the provisions in the Legal Service Agreement that the lawyer’s fee shall be 10% of the total value involved, the Guarantor confirms that the total amount of lawyer’s fee it owes the Agent is thirty nine million six hundred and six thousand Hong Kong dollars (39,606,000 HKD), and the deposit of one million Hong Kong dollars (1,000,000 HKD) shall offset the special working fees for case-handling.
Director CHAN Chun Keung, Director WANG Sui Ying and Director PU Zi Ren of the Board of Directors of City Express Investment Limited and Filon Investment Limited hereby solemnly undertake to pay the Agent lawyer’s fee in a sum of thirty nine million six hundred and six thousand Hong Kong dollars (39,606,000 HKD) all in one go after the conclusion of the asset preservation enforcement cases Nos. 29 and 30. All the company directors will be liable for the debt, and the Certificate of Guarantee of the Settlement of Debt is signed according to law.
( 擔保人經濟拮據無能力及時支付訴訟費、訴訟保證金。依據擔保人向代理人求援墊付訴訟保證金和確認待案件終結後一次性全額清算償付律師費的承諾，擔保人于二零零二年四月十二日召開董事會議，決定由陳進強董事、王穗英董事、浦自仁董事依法簽署本律師費債務清算擔保證明書。
一． 依據雙方簽訂的司法維權法律服務協議，代理人依法主持1119資產保全民事訴訟、刑事檢控訴訟案件。依據債權總標底百分之十律師費法律服務協議條款、擔保人向代理人支付司法維權法律服務律師費訂金一佰萬港圓(1,000,000 HKD)。
二． 代理人為擔保人墊付四佰八十六萬二仟六佰一十二港圓(4,862,612 HKD)資產保全保證金。二零零一年十月十九日擔保人償還代理人三佰萬(3,000,000 HKD)港圓。債務餘額為一佰八十六萬二仟六佰一十二港圓(1,862,612 HKD)。
三． 代理人合法有效主持第247號、第248號民事調解訴訟案終結，為擔保人墊付二佰一十九萬三仟三佰七十四港圓(2,193,374 HKD)。二零零二年二月二十三日擔保人償還代理人二佰一十九萬三仟三佰七十四港圓(2,193,374 HKD)。
四． 代理人依法主持第29號、第30號資產保全執行案，為擔保人墊付二佰一十九萬三仟三佰七十四港圓(2,193,374 HKD)資產保全執行保證金。
五． 綜上所述，擔保人實際拖欠代理人資產保全保證金一佰八十六萬二仟六佰一十二港圓(1,862,612 HKD)。拖欠代理人主持第29號、第30號資產保全執行案，為擔保人墊付二佰一十九萬三仟三佰七十四港圓(2,193,374 HKD)。拖欠資產保全執行保證金總額四佰零五萬五仟九佰八十六港圓(4,055,986 HKD)。擔保人(董事會)一致確認于二零零二年四月十六日前一次性全額償還代理人墊付之四佰零五萬五仟九佰八十六港圓債務款項。
….
5. 第247號、第248號民事訴訟案；第29號、第30號資產保全執行案標底總額為三億九仟六佰零六萬港圓(396,060,000 HKD)。依據法律服務協議總標底百分之十律師費條款，擔保人確認欠代理人律師費總額為三仟九佰六十萬六仟港圓(39,606,000 HKD)。核銷一佰萬港圓(1,000,000 HKD)訂金作為承辦案件專項辨公經費。
….
香港城運通投資有限公司、香港飛朗投資有限公司董事會陳進強董事、王穗英董事、浦自仁董事鄭重承諾待第29號、第30號資產保全執行案終結後，向代理人一次性全額償付三仟九佰六十萬六仟港圓(39,606,000 HKD)律師費。本公司全體董事承擔債務法律責任。依法簽署本債務清算擔保證明書。)”
44. Chan was cross-examined on C115. He admitted signing the Certificate and that it stated that his companies were in financial trouble. However, he denied that such statement was true. The following is his evidence :
“…he [Zhang] said: ‘You signed first. There is no need to pay now. Once you obtain the properties, you paid in one go.’ As a businessman, if I can pay later I pay later and when I get the properties back I would be happy to pay these sums as stated here. ... At the time I had some arguments with Zhang. I said: ‘We said that once the HK$1m had been paid the rest would be paid after we got possession of the Properties.’ [Zhang] showed me the court judgment from Beijing. I thought that the properties would be recovered soon. He said to me that I only had to pay the sums set out on C115. He needed to show this guarantee to the military. I also requested that the payments he needed be set out and he did so here. He said that these payments were all for the court[31]”
45. When Chan was questioned about the various payments set out on C115, he said that he just calculated those sums and looked at the total. He was prepared to pay that total sum if he could get the Properties. He said that he was not concerned about the various figures if the total was acceptable. He also said that he was not clear about those figures and he could not argue with Zhang.
46. Chan also denied the suggestion made by Mr Shieh that the document was prepared by his side and that it was done to persuade Zhang’s side to get them to carry out the enforcement. To understand this part of Zhang’s case fully, I should say that there is a dispute as to the scope of the services under the LSA. In other words, what was agreed that LAD and Themis had to do in order to earn the 10% of the value of the subject matter of claim (see clause 6 set out in para. 6 above). It is Zhang’s case that once the Mediation Orders were obtained, the fees were payable. Hence, the enforcement proceedings were, according to him, not part of the services covered by the LSA and had to be separately paid for. Therefore, Chan had to provide the Certificates to get them to carry out the enforcement.
47. At this juncture, I wish to make two points. Firstly, I do not believe that the Certificates were drafted by Chan’s side. The contents of these documents are against that proposition. They were drafted by someone who wanted money from the companies. If Chan were the author, I do not see why the HK$3 million was not referred to as LSD and the HK$4.86 million[32] as fine. Much more likely than not, these documents were drafted by Zhang.
48. Secondly, the proper construction of clause 6 of the LSA will in due course be determined in proceedings by Themis and/or LAD against City Express and Filon. I do not believe that I need to decide that issue. However, I bear in mind that the Certificates suggested that the enforcement proceedings (actions no. 29 and 30) were part of the services included under the LSA and that the legal fees were to be paid upon conclusion of the enforcement proceedings. This is of some importance. Insofar as Chan and Zhang were concerned at the time, the legal fees were only payable after conclusion of enforcement.
49. I shall come back to the Certificates later.
50. There are two Letters of Authorization of the same date as the Certificates, again one from City Express and one from Filon.[33] These documents authorized LAD to carry out the enforcement proceedings. On the next day, 16 April 2002, the fourth payment of HK$2 million was made. The final payment of HK$2.055 million was made on 6 June 2002. As noted in para. 8(v) above, this payment was said to be repayment of litigation fees which had been already been paid on behalf of Chan. On that same day, there was another set of Letters of Authorization concerning proceedings against Hung Tai.[34] Finally, again on the same day, two applications were made for Interim Preservation against Hung Tai.[35]
51. Same conclusions can safely be drawn on the basis of the above documents. Firstly, the last two payments must have been made pursuant to clause 5 of the Certificates. The two payments added up to precisely HK$4,055,986 mentioned therein.
52. Secondly, I am unable to see what payment had been made by Zhang’s side as of 6 June 2002 which called for the reimbursement of HK$2.055 million. It is Zhang’s evidence that the alleged fine of HK$4.86 million was not paid eventually because they succeeded in asking the court to forgive Chan. I have not overlooked the evidence of Professor Li Yong Jun (Li), an expert on PRC law called by Zhang, that to enforce the Mediation Orders would require another payment of court fee in the amount of RMB 2,193,374[36]. However, it is not Zhang’s case that such a payment had been made. He was in charge of the proceedings and must have knowledge of these matters.
53. Before I move to the evidence of the defence, I shall deal with the document which is the focus of Mr Shieh’s final submissions. In 2003, Chan became dissatisfied with Zhang, he went to Beijing to see Yang and on 7 April 2003 managed to get Yang to sign on the NT[37] which he took along with him. This document set out the payments made by Chan. In respect of the disputed payments, they were described as :
(1) Asset Preservation Security Deposit (資產保全保証金), HK$3 million;
(2) Enforcement Security Deposit (執行保証金), HK$2 million; and
(3) Litigation Fee paid by agent on behalf [of the principal] (代理人代墊訴訟費), HK$2.055 million.
54. When cross-examined on the contents of the NT, Chan said for the first time that it was drafted by a female PLA staff introduced to him by Chau. This was contradicted by the evidence of Chau who denied introducing any female PLA staff to Chan. He, however, recalled introducing a female lawyer to Chan but she was not from the PLA. I find this part of Chan’s evidence unsatisfactory. He appeared to be reluctant about disclosing the assistance of this lady. Possibly, that was due to the fact that he and/or Chau had made use of their connections gained as members of CPPCC to obtain such assistance. On the other hand, it is possible that Chan simply did not have a good recollection over events which took place many years ago. Quite apart from this matter, I certainly have the impression that Chan does not have a sharp memory in respect of these matters. In any event, I shall take this as a point against Chan in the assessment of his credibility.
Zhang’s evidence
55. I have already covered the substance of Zhang’s case and some of his evidence in the course of dealing with the plaintiffs’ evidence. Zhang and Li were the only witnesses for the defence.
56. In respect of the RSD (it is Zhang’s evidence that the term in full should be “Litigation Risk Security Deposit” (“LRSD”)), Zhang said that the money was to cover the risk to the lawyers in the event that the evidence of City Express and Filon turned out to be false. As I understand from this evidence and that of Li,[38] there were two elements to this “risk”. If the evidence was unreliable, the case would be lost and LAD would not get its fees. In addition, the lawyers’ reputation might be damaged (there is no elaboration in the evidence of how that would be so).
57. Zhang said in cross-examination that originally there was a draft of the LSA and clause 4 of which contained a provision referring to the LRSD in the sum of HK$5 million. He said that the discussions over the provisions of the LSA took place over a period of two weeks involving him, Yang, Chan and Pu. Although the LRSD was agreed, it was replaced by a guarantee put up by Choi (see para. 31 above). When challenged about the lack of mention of Choi’s guarantee in the LSA, Zhang said that according to PRC law the LSA and the guarantee were two separate things and the latter should not be mentioned in the former.
58. It is right to say that the suggestion that there was a draft of the LSA containing a reference to the LRSD is not something mentioned in Zhang’s witness statements or in his previous affirmations filed in this action. He was of course taxed on this deficiency. His explanations that his witness statement[39] did not express his meaning sufficiently and that it was just a brief description of the matter are unconvincing.
59. It is convenient to deal with another point raised by Mr Pow here. There are two documents which appear to have emanated from Yang and both of which have been produced and relied upon by Zhang, namely, a statement of Yang dated 25 September 2003[40] and witness statement dated 15 January 2010[41]. In those statements, it was suggested that Yang met Chan for the first time on 25 March 2003, a long time after the signing of the LSA. On this point, Zhang said that such suggestion is incorrect.
60. As regards the HK$2.055 million, Zhang was cross-examined about the acknowledgement he wrote at C137 as follows :
“Q: Why was the term ‘litigation expenses’ used?
A: Because it was in relation to extra work to be done concerning the proceedings against Hung Tai.
Q: This would be remuneration for lawyers for that extra work?
A: Not remuneration … It was litigation fees for paying to court.
Q: This amount actually paid to court in China?
A: This was not paid in fact. We had provided a guarantee in that amount.”
61. Quite apart from the inconsistency between this evidence and the wordings of the acknowledgement, I am troubled by the fact that, as noted in para. 51 above, the proceedings against Hung Tai were apparently started on the same day as the payment of the HK$2.055 million. In light of the payment, I am unable to see why, as alleged by Zhang, LAD had to put up a guarantee for City Express and Filon because Chan had failed to make the requisite payment. I also see the force made in cross-examination by Mr Pow that there is no document which evidence the guarantee. I am of course alive to Chan’s evidence that Zhang did tell him about the need to put up security for the Interim Preservation applications against Hung Tai. However, it is an undisputed fact that no money was in fact needed for that purpose.
62. There is no issue that Zhang’s prior affirmations contain material discrepancies and he sought to explain the same in his witness statement, attributing the problem to, inter alia, his inability to read or understand English or Cantonese. He was cross-examined on these matters. He made serious allegations against his previous legal advisors for not getting his approval before an important reply letter[42] was sent out on his behalf and failing to interpret the contents of his affirmations to him despite the affirmations by his solicitor that such a task had been performed.[43] There is no suggestion of any complaint having been made by Zhang against his previous lawyers. The sheer number of discrepancies cast doubt on Zhang’s allegations and I do not believe them to be true.
63. There is another aspect of Zhang’s evidence on which a substantial amount of time was invested in cross-examination. It concerned a number of payment receipts from Themis for, inter alia, the moneys handed over to Zhang by Chan. It is the plaintiffs’ case that these documents were created for the purpose of this action.
64. I have to start by going back a little to the pre-LSA stage. It is not disputed there were some discussions between Zhang and Chan about him joining Themis. Zhang’s case is that Chan wanted LAD to represent his companies and promised to make a donation to Themis of HK$1 million every year to try to achieve his purpose. It is undisputed that no donation had in fact been made by Chan. However, in Zhang’s affirmations it was stated that two donations of HK$1 million each had been made. In addition, there is a Joint Declaration apparently made by Mr Min and Mr Song of Themis dated 12 September 2003.[44] This document was exhibited to Zhang’s 2nd affirmation. The alleged donations to Themis were also mentioned in this document. Moreover, two receipts of Themis for the donations had been produced by Zhang.
65. The allegation of donations has been abandoned, but the matter is clearly important on the credibility of Zhang. In answer to questions on the receipts for the donations,[45] Zhang mentioned an accounting system which, on any view, is quite extraordinary. On the face of the receipts, payments of RMB 1,060,000 (equivalent to HK$1 million) were made by Zhang on behalf of Chan on the stated dates. However, Zhang’s evidence is that such suggestion is not true. He explained that those donations were regarded as “payable yet unpaid” (應付未付). Instead of recording them as account receivables, receipts would be prepared and they would not be given to Chan until he actually paid the sums. Zhang said that this was the accounting practice adopted by the PLA. With respect, I find this evidence against commonsense is devoid of any truth. I do not believe that any of the Themis receipts is a genuine contemporaneous document.
66. Finally, I should say that, with respect, I do not find the evidence of Li particularly helpful in resolving the credibility issue. I hope I can be forgiven for not setting out his report in this judgment.
Assessing the Credibility
67. In the course of dealing with the evidence of the parties, I have already stated my view on a number of matters concerning credibility. I have no doubt in my mind that Zhang is not a credible witness. There are just too many holes in his evidence.
68. Mr Pow has helpfully prepared, in a tabulated form, an illustration of the changes in Zhang’s case in the course of this action — Annexure 2 (as amended in the course of Mr Pow’s opening). I was surprised that even the version set out in his witness statement was said to be inadequate and he came out with yet another change by referring to a draft LSA (see paras. 58 and 59 above).
69. I bear in mind Mr Shieh’s submission that Zhang may belong to the “old school” (he appears to be at least in his sixties) and unfamiliar with the modern modus operandi familiar to Hong Kong people. On the other hand, Zhang is a lawyer and he must have appreciated the significance of, e.g. his affirmations and would have done what was within his power to ensure the accuracy of their contents. His denial, on the face of clear documentary evidence, that he was acting as an agent of City Express and Filon is unhelpful to the assessment of his credibility.
70. There is no contemporaneous document in support of Zhang’s case. The relevant documents, set out above, are against his case. Finally, I am not impressed by Zhang’s demeanor in the witness box. At times when he was under pressure of cross-examination, he appeared to be lacking in conviction in what he was saying. On many occasions, he gave long repetitive answers to difficult questions, which gave me the impression that he was avoiding the same.
71. In respect of Chan, I bear in mind the valid points made by Mr Shieh on his credibility as noted above. However, I find that the relevant documents are more consistent with Chan’s evidence and the suggestion that Zhang cheated him. I certainly prefer Chan’s evidence over that of Zhang on the circumstances under which the disputed payments were made.
72. I do not agree with Mr Shieh’s submission that the NT is consistent with Zhang’s case. Although the HK$3 million and HK$2 million were described in that document using, inter alia, the words “security deposit” (保証金), none of them was described as LRSD. The former was described as “asset preservation security deposit” and the latter as “enforcement security deposit” (see para. 54 above). Apart from the difference of terminology compared with “LSD” as stated on the Acknowledgement (see para. 8(i) above), there is no reason for different descriptions to be attributed to the two payments if Chan indeed understood from Zhang that they were all for the single purpose of LRSD. Further, the sum of HK$2.055 million was described as “litigation fee paid by the agent on behalf [of City Express and Filon]”. If Zhang’s evidence were true, that sum of money should have been described as being used for payment of legal fees.
73. It may be the case, and I do not believe that I need to resolve the point or that the evidence is sufficient to enable me to do so, that the author of the Notice had with her various documents given to her and set out in Notice what she understood to be the purposes of the various payments.
74. Coming back to the Certificates. I have already found that the contents of those documents came from Zhang. I believe that a careful reading of them reveals that Zhang made use of the alleged fine of HK$4.86 million to deceive Chan into paying him another HK$4.055 million. For instance, the sum of HK$3 million was stated to be a partial repayment of the HK$4.86 million, which cannot be true based on either the case of Zhang or that of Chan. The payment of HK$2.19 million was again stated to be a reimbursement. I have already pointed out in para. 36 above that before the court charges were paid Zhang had been put in funds by Chan. I believe that, as Chan said, Zhang had repeatedly made use of the excuse of reimbursement to get money from him.
75. Last but not least, notwithstanding the fragilities of his evidence, Chan was a better witness in court. On the circumstances under which he handed over to Zhang the disputed payments, he gave his evidence with conviction and there is no material inconsistency in the same. No issue has been taken on Chan’s reliance on Zhang’s representations.
76. For completeness, I should say that even if I were to accept Zhang’s case, I would have ordered the repayment of the disputed sums. The reason being that the accounts given by Zhang in the course of this action as to where the moneys had gone would have left me in considerable doubt whether he did use the funds for the purposes that they were paid. There is no dispute by Mr Shieh that I have the power to do so if I find that Zhang was acting under fiduciary duties (there is no issue taken on the usual fiduciary duties to which an agent is subject) as an agent when he received the moneys.
Conclusions
77. In the premises, I am satisfied that Zhang obtained the disputed payment by fraudulent misrepresentation and he has failed to provide a proper account for the same in breach of his fiduciary duties. I order the repayment by Zhang of the total sum of HK$7,055,986 to City Express and Filon. Interest is to run from the dates when the disputed payments were made at 1% above prime rate until Judgment and thereafter at Judgment rates until payment. The costs of this action is to be borne by Zhang to be taxed if not agree.
78. I dismiss Chan’s claims with no order as to costs.
79. Last but not least, I am grateful for the assistance rendered to me by Counsel on both sides.
| ( Anthony Chan, SC ) Recorder of the Court of First Instance High Court |
Mr Jason Pow SC, instructed by Messrs Iu, Lai & Li, for the 1st to 3rd Plaintiffs
Mr Paul Shieh SC and Mr Simon Ho, instructed by Messrs Waller Ma Huang & Yeung, for the Defendant
[1] It may be an oversight that Filon was omitted from this part of clause 1. However, nothing turns on this point.
[2] Bundle C, p.133.
[3] C137.
[4] See para. 3 above.
[5] See D36-7.
[6] D68-74.
[7] D48-9.
[8] E97-101; 102-5.
[9] E118-137.
[10] E138-149.
[11] Re-amended Statement of Claim, paras. 11A(i) and (ii).
[12] C127 and 128.
[13] A90, para. 7.
[14] E51.
[15] E52.
[16] E53.
[17] C107.
[18] E54.
[19] E55 and 56.
[20]C108.
[21]E70.
[22] D49-51.
[23] C359-60, cl. 4.
[24] D11.
[25] Subsequently clarified by Chan as meaning Zhang, Themis and LAD.
[26] D39-42 and D43-6.
[27] E62.
[28] E64-7.
[29] C26-7 and C29-30.
[30] C114-6 and C118-20.
[31] Chan later clarified that the HK$1m was not a payment for the court.
[32] There is a small discrepancy in the sum appearing on the Certificates and that appearing on C359, but there is no dispute that they were meant to be the same sum.
[33] C129 and 130.
[34] D65 and 66.
[35] E69-70 and 71-2.
[36] A181, para. 4.
[37] C139-40.
[38] A179, para. 5.
[39] A125, para. 3.10.
[40] C182-6.
[41] E150-6.
[42] C211.
[43] B21 and 65.
[44] C188-200.
[45] C101 and 112.