PENG FENGSHENG v. WONG TAK HUNG

HCA 1336/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1336 OF 2009

____________

____________

_______________

J U D G M E N T

_______________

Introduction

1.  This action concerns events which took place in 2003, the year when Hong Kong and Guangzhou were affected by the outbreak of SARS.  The economy took a set back at the time and the property market was slow.  The dispute in this case arose out of an auction in Guangzhou where a commercial building called York Point Plaza (“the Property”) was sold. 

2.  In short, the plaintiff (“Peng”) said that he and the defendant (“Wong”) had an oral agreement to jointly acquire the Property.  Having succeeded in doing so, Peng then had to withdraw from the venture and the shares of his investment vehicle (Huge Faith Holdings Ltd (“HF”)), which was intended to be used to hold his interest in the venture, were sold to Wong for HK$12.5 million under another oral agreement. In breach of the agreement, Wong has failed to pay the purchase price despite having received the shares of HF.  It will be clear from the discussions below that the resolution of the dispute here turns upon primarily the credibility of Peng and Wong.

The plaintiff’s case

3.  Peng’s evidence is that he learned about the auction of the Property in about May 2003 from someone he knew in the local government.  The Property was an incomplete project and it was being sold under an order from The Intermediate People’s Court of Guangzhou City.  The “intended price” for the Property was not less than RMB690 million. Peng was interested in the Property and he carried out various “preliminary works” with the view to acquiring it.

4.  Peng’s initial plan was to acquire the Property jointly with a friend (Cheng Tung Leong[1] (“Cheng”)) because he did not have sufficient funds for the acquisition.  However, the acquisition was beyond their means and Wong, Cheng’s business partner, was introduced by Cheng to join them in the venture.  Wong was interested in the Property and after discussion it was agreed that Peng would continue with the preliminary works for which he would be paid.  Further, if they succeeded in acquiring the Property (at the right price), a new joint venture company would be formed to hold it and to manage the business to be generated with it (“the Business”).  The shares of that company would be 10% owned by Peng and 90% owned by Wong (Cheng’s shares would come out of Wong’s 90% and it was a matter between the two of them).

5.  According to Peng, the most important part of his preliminary works was the negotiations with the government to reduce the price of the Property.  There is considerable obscurity as to what the negotiations were intended to achieve and what was indeed achieved.  I shall come back to these matters in the analysis of evidence.  For the present purpose, it suffices to note that according to Peng he succeeded in reducing the price to RMB550 million, and Wong was very pleased with the achievement. 

6.  The auction took place on 24 October 2003.  One of Wong’s companies, 萬菱實業（深圳）有限公司 (“S”), was used for the purpose.  It was a Dutch auction (open descending price auction).  The bidding was opened at RMB650 million, there was no taker until the price dropped to RMB548 million and at which point S entered and succeeded with its bid[2].

7.  It is undisputed that various expenses had been incurred prior to and shortly after the auction, namely, an auction deposit of RMB20 million, auction fee of RMB13.7 million and tax in the sum of RMB16.44 million.  Peng did not contribute to any of such payments.

8.  On 3 November 2003, HF was incorporated.  Peng owned 9,999 out of 10,000 shares of that company.  He and Chan Chow Tong (an employee of Wong who owned the remaining one share (“Chan”)) were the directors of HF. 

9.  On 1 December 2003, S, Tat Yeung Holdings Ltd (Wong and Cheng were two of the three shareholders of that company and their shareholding were respectively 40% and 20%) and HF entered into a joint venture agreement (“Joint Venture Agreement”) for the purpose of establishing a new joint venture company in Guangzhou – 廣州市萬菱置業有限公司 (“G”).  The shares of G would be allocated to those companies in the respective percentage of 30, 60 and 10.  Peng’s case is that his 10% interest in G would reflect his interest in the Property.  It was intended that the Property would be injected into G. 

10.  However, before the establishment of G was approved by the authority, disagreement had arisen between Peng and Wong regarding the operation of the Business.  As a result, Wong suggested that he would buyout Peng’s interest in the Property (or as put by Mr Wong, who appeared for Peng, “the right to invest in the Project”).  Peng said that on 18 December 2003 at San Diego Hotel in Jordan, Hong Kong, he had a discussion with Wong concerning the buyout.  It was orally agreed that all his shares in HF would be sold to Wong at the price of HK$12.5 million to be paid to him 120 days after the transfer of the shares. 

11.  On 20 December 2003, Peng came to Hong Kong with a friend, Dang Weixiang (“Dang”), to meet with Chan for the purpose of signing the share transfer documents.  Another friend of Peng, Wong Wing Hung (“WH Wong”), was also present at the time.  It is Peng’s evidence that a statement was made by Chan during the meeting confirming Wong’s agreement to the buyout at HK$12.5 million (“Chan’s Statement”).  Peng also said that on that day a written confirmation (“Written Confirmation”) was drafted by Dang to record the buyout agreement and that he had a telephone conversation with Wong whereby Wong promised to sign the Written Confirmation and return it to him later.  On the basis of Wong’s promise, the transfer documents were then signed by Peng and returned to Chan together with the Written Confirmation for Wong’s signature.   

12.  Peng said that Wong reneged on his promise to sign and return the Written Confirmation.  He also failed to pay the purchase price for the shares despite repeated demands by Peng. 

13.  Dang and WH Wong were also called to give evidence for Peng.  Their evidence concerned the events of 20 December 2003. The last witness for Peng was Zhang Jianfeng (“Zhang”).  He worked for the auction house in question and was in charged of the auction of the Property at the material time.  His evidence was short and touched upon the pre-auction enquiries made with him by Peng and Cheng concerning the Property and the participation of S as one of the bidders. 

The defendant’s case

14.  Wong said that he got to know Peng via an introduction by Cheng.  Cheng had indeed told him that Peng knew about the sale of the Property.  He knew from Cheng that the price of the Property was around RMB600 million but he thought that it should only be purchased if the price was RMB500 million odd.  Wong denied that he had any agreement with Peng to jointly bid for the Property.  Instead, it was a business venture of his family (including himself) and Cheng and the decision for which did not concern Peng.  Prior to making the decision to participate in the auction, Wong had visited the Property and spent about 1 to 2 hours to inspect it and assess the amount of work required to put it into a lettable condition. 

15.  For purpose of the auction which he did not attend, he gave instructions to Cheng to bid for the Property at about RMB550 million.  After the acquisition of the Property, in early November 2003 Peng suddenly asked, via Cheng, to participate in that venture.  Subsequently, Wong agreed with Peng that he could take up 10% interest in the same and the Joint Venture Agreement was signed.  However, in return for his 10% interest, Peng was required to contribute to the purchase price of the Property, the commission to the auction house and the tax in the same proportion.  Under the Joint Venture Agreement, Peng was required to pay RMB20 million in return for the 10% shares in G.  Whilst the evidence is not entirely clear, it appears that the RMB20 million would be part of Peng’s total contribution for his 10% interest. 

16.  Wong’s evidence is that neither Peng nor HF had the financial ability to take up the 10% interest and the Joint Venture Agreement was eventually abandoned for that reason. 

17.  Wong said that in about December 2003 Peng told him, via Chan, that by reason of his withdrawal from the venture he had wasted the money in acquiring HF and suggested that his shares in that company be purchased by Wong at HK$9,999.  Wong agreed. However, he disagreed that the purchase price was HK$12.5 million and he had never seen the Written Confirmation or heard about it from Chan. 

18.  Two other witnesses were called for Wong, namely, Chen Sufan (“Chen”) and Cheng.  Chen used to work for the previous owner of the Property.  He became an employee of G in April 2004.  His evidence was mainly about the auction during which he was present. He said that there were two or three bidders and that Peng appeared to be attending the occasion as a representative of another bidder, not as a representative of Wong or S. 

19.  Cheng’s evidence was that Peng told him about the sale of the Property in the middle of 2003.  Peng was hoping to be given a contract for some of the renovation work in the event that Cheng and his associates succeeded in buying the Property.  Cheng told Wong about the Property and Wong was interested.  He then brought Peng to Hong Kong to meet with Wong and to discuss about the details of the auction.  Eventually, he and Wong together with Wong’s family decided to co-operate and make a bid for the Property in the name of S. 

20.  Cheng said that he was never told by Peng about any negotiation with any government official concerning the auction.  Cheng also said that at the beginning of November 2003 Peng suddenly requested to join in the investment.  However, due to the lack of funding, Peng subsequently withdrew from the same.

21.  Before I proceed with the analysis, I should mention that in the course of Cheng’s evidence he referred to certain incidents involving, inter alia, Peng and Wong whereby Wong had agreed to pay Peng a total sum of RMB7.5 million as compensation for Peng’s alleged loss in the acquisition of the Property.  There are in the bundles two confirmation letters and one consultation agreement relating to those matters[3].  Originally, there were disputes in respect of these matters.  However, at the beginning of this trial, the parties had agreed to the deletion of the pleadings in relation to these matters such that they no longer constitute an issue before this court. 

Analysis

22.  Peng was a breathtakingly poor witness.  He stumbled at almost all questions on the important details of his case.  At times, his answer was simply incomprehensible.  Sometimes, instead of answering the question he would give some sort of explanation which had nothing to do with the question asked.  This was done despite the fact that it was explained to him by this court on a number of occasions that he should first answer the question and then, if necessary, provide his explanation.  On some other occasions, Peng said that he could not provide an answer without going into the background facts, and when he did so he simply repeated the story stated in his witness statement.  With respect, there is no doubt in my mind that Peng had difficulties answering many of the questions asked in cross-examination and the above reflected his attempts to avoid the questions.

23.  I should point to a few examples to highlight the fact the Peng’s case does not stand up to scrutiny when he was taxed on some of the important details.  Firstly, Peng was asked why, according to his understanding, Wong had to co-operate with him on the Project.  Peng answered that it was his project.  By that he meant that he had negotiated with the government and carried out all the preliminary works.  The negotiations ultimately resulted in an agreement over the price of RMB548 million.  Given that the Property was intended to be and was sold by public auction, it was not surprising that Peng was taxed on his answers.  After further questions were asked, Pend said that Wong gave him a clear indication that part of the Property might require renovation work and therefore the price should be lowered to RMB630 million (from the “intended price” of RMB690 million).  Wong asked him to negotiate the price with the government, and after some negotiations the government agreed to a reserved price of RMB548 million.  Peng confirmed that his main contribution was in the negotiations with the government. 

24.  When further questioned, Peng jumped back and forth a number of times as to what was the reserved price – RMB550 million or RMB548 million.  At the end, he did not manage to make clear which was in fact the reserved price.  He said that it was not the case that the government was unwilling to sell below the reserved price and that S had succeeded in a bid which was lower than the reserved price (one might think that it was implicit from this answer that the reserved price was RMB550 million[4]).  However, a few questions later, Peng agreed with the proposition that the reserved price was internally fixed by the government as the lowest price. 

25.  Further, in respect of the discussions with Chow Yiu Ming, a senior official from the government, Peng said that no oral agreement was reached on the reserved price.  He then said that they had an oral consensus on that issue.  After clarification, he said that oral agreement and oral consensus amounted to the same thing. 

26.  The confusion did not stop here.  When challenged in cross-examination that the government would sell to any bidder at the auction who would put up a price in excess of RMB550 million, Peng initially said that he had no control over the government.  He then changed his mind and said that the consensus reached with the government meant that it would only sell to S.  When given the opportunity by the court to explain the u-turn, Peng provided an incomprehensible answer. 

27.  Secondly, in respect of the preliminary works, Peng said that such works included investigation of the Project; obtaining information of the auction; investigating the surrounding area of Property, the rental market, and the renovation work required for the Property.  Peng said that such works were carried out at the request of Wong.

28.  When Peng was asked as to the documentary support for his works, he relied upon two documents.  The first was a brochure like document for the promotion of the Property the cover of which suggested that it might have been produced by Guangzhou Property Exchange[5]. When pressed, Peng conceded that anyone interested in the Property could have obtained a copy of that document.  However, he said that he had produced some of the data contained in that document.  I find that allegation highly unlikely given that Peng had not participated in any land development business prior to 2003 and there was no suggestion that he had any relevant qualification on those matters.  More likely than not, it was a convenient lie made up by Peng. 

29.  The second document was a Market Assessment Report for the Property which was produced by Guangzhou China Land Property Co Ltd[6] (“GCL”).  Peng said that he, Wong and Cheng instructed GCL to produce the report and he had paid RMB80,000 for the service.  However, there was no suggestion in the report that it was produced on the instruction of any person or company.  Normally, such an acknowledgement would be present in a conspicuous place in the report.  Further, Peng had no proper explanation to the challenge why such a report was required when he had reached a consensus with the government which would secure the success of S’s bid at the auction.  Furthermore, Peng had to retract his evidence yet again when he said that the report provided a valuation of the Property (it did not)[7]. 

30.  Thirdly, one of the issues raised by the defence is that Peng had insufficient funds to take up his 10% investment in G.  On that issue, Peng was taken to a previous affirmation of his in which he tried to contradict the suggestion that he was lacking in funds by referring to a bank account of HF in which there was a balance of HK$10,000,850[8]. It turned out that HK$10 million of that sum was in fact borrowed from one of Wong’s companies, Wong Sun Hing Ltd.  I cannot understand Peng’s purported explanation on why he made used the money borrowed from Wong’s company to seek to demonstrate that he had no financial difficulty.

31.  Further, Peng said that at the time of the borrowing he actually had more than the equivalent of HK$10 million in Renminbi in the Mainland.  When asked why he did not give Wong the Renminbi in Mainland in exchange for the HK dollars he needed in Hong Kong instead of having to borrowing the HK$10 million, he initially gave a long answer which suggested that it could not be done lawfully due to certain exchange control.  Later, Peng conceded that he could have done so and indeed he did tell Wong that he could repay him in Renminbi anytime but Wong did not ask for the money.  I believe this to be a good example where Peng tried to fend off the question by referring to some Mainland regulation or practice.  Lastly, no document has been produced by Peng to try to demonstrate his financial position at the material time despite his suggestion that he was in a position to do so.

32.  Fourthly, Peng’s evidence was that he asked Wong for HK$15 million for the sale of his shares in HF but Wong counter offered HK$12.5 million and that was the price agreed upon.  When asked by this court if he knew the basis of Wong’s counter offer, Peng initially said that it was a matter of the exchange rate.  HK dollars being more valuable than Renminbi at the time and HK$12.5 million equalled RMB15 million.  In other words, Wong did not bargain with him on the price.  Later, probably having realised that his asking price was actually in Hong Kong dollars, Peng changed his evidence and said that he did not know the basis of Wong’s counter offer and that he had misunderstood the question.  To be fair to Peng, after he explained that it was a matter of exchange rate, it was the court who asked him whether it was the case that HK$12.5 million equalled RMB15 million.  I therefore bear in mind that Peng might have been misled by a question from the court.  On the other hand, looking at this part of the evidence in its entirety, I have little doubt that this is another example of Peng’s lack of credibility.

33.  Last but not least, I should mention two further points.  Firstly, I accept that there were documents which showed that Peng had participated in certain post-auction works (see C/478 and 342).  That is consistent with the fact that he was eventually paid RMB7.5 million for certain services he had provided. Secondly, I also accept that (putting aside questions of legality or propriety) if in fact Peng had managed to elicit from the government the reserved price and managed to have it lowered, it would be a useful piece of information for any potential bidder. 

34.  For the above reasons, I have no hesitation in rejecting the evidence of Peng as that of an unbelievable witness. 

35.  It follows from the rejection of Peng’s evidence that his case must fail.  In truth, the evidence of his witnesses is of marginal relevance and cannot resurrect his case. However, for completeness I shall deal with the rest of the evidence briefly. 

36.  It may be said that Dang and WH Wong had no reason to be untruthful with their evidence.  However, in respect of Chan’s Statement which both of them had allegedly heard, I am sceptical about their recollection of this solitary statement after so many years.  As regards the Written Confirmation, firstly, it was based on what Peng said to Dang (the drafter) and therefore self-serving.  Secondly, as highlighted in the cross-examination of Dang, the Written Confirmation had failed to record the alleged oral agreement on 18 December 2003.  Instead, it purported to take effect upon signing by both sides.  That is inconsistent with Peng’s case.  I have another reason to doubt WH Wong’s evidence.  According to Peng’s pleaded case, he was not present on the 20 December 2003[9]. For these reasons, I do not place much weight on the evidence of Dang or WH Wong.  With respect, the evidence of Zhang is of little relevance. 

37.  Wong was not a particularly impressive witness because his recollection of the events was poor.  On the other hand, Wong was clearly the boss and much if not all of the works were delegated to his staff.  Further, he is not a highly educated man and was not keen to be involved with paperwork.  I bear in mind some of the criticisms made by Mr Wong in respect of Wong’s evidence, eg, the lack of detailed explanation on how the bid price of RMB550 million was arrived at and the inconsistency between Wong’s evidence on the capital contribution which Peng had to make and the terms of the Joint Venture Agreement.  However, I am of the view that Wong’s evidence had withstood the test of cross-examination and his demeanour did not suggest that he was a dishonest witness.  On balance, I am inclined to prefer his evidence over that of Peng’s. 

38.  I do not find Chen’s evidence to be of much help.  It is actually undisputed that S was represented at the auction by three persons including Cheng (but excluding Peng).  Peng was sitting at another table with other people. 

39.  I find Cheng to be fairly straightforward and honest with his evidence.  Like Wong, his evidence stood up to the test of cross-examination and I am also inclined to accept his evidence. 

Conclusion

40.  In the premises, this action is dismissed with costs to be taxed if not agreed.  I decline to grant a certificate for two counsel in light of the issues and the lack of complexity.

HCA 1336/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1336 OF 2009

____________

_____________

D E C I S I O N

_____________

1. This is an application by the defendant to vacate the trial date of this case which was fixed on 21 August 2012 with 6 days reserved. Leave to set down this case for trial was granted by Mr Registrar Lung on 19 October 2011. The actual trial date was fixed on 1 December 2011.

2. The case came before me for a PTR on 29 May 2012, and Mr Rimsky Yuen SC appeared for the defendant in that particular hearing.  By that time, the defendant had already informed the court that Mr Yuen, for some reasons, might not be able to conduct the trial himself. 

3. The defendant now applies to vacate the trial date on the ground that he is not able to engage an appropriate senior counsel to conduct the case on his behalf. 

4. Mr Yuen was appointed as the Secretary for Justice in late June.  According to the affirmation of the defendant, his handling solicitor had tried to engage 4 senior counsel, all from the same set of chambers, to conduct the case on behalf of the defendant after PTR hearing, but none of them is available. 

5. Further, the defendant had difficulty in briefing counsel to conduct the trial in August when many leading counsel would be away on holiday, and the choice of counsel is further limited by the fact that most of the documents in the present case are in Chinese or simplified Chinese.  As the change of senior counsel is not due to fault of the defendant and the freedom in respect of the choice of lawyer is a right guaranteed by Article 35 of the Basic Law, Ms Eu SC, counsel for the defendant, submits that the court should allow the defendant’s application to adjourn the trial.

6. After the implementation of the CJR, O 25 r 1B of the RHC provides that the trial date is a milestone date for the purpose of case management and may only be varied by application to the court where exceptional circumstances justify the variation.

7. Further, para 42 of Practice Direction 5.2 provides that milestone date will be immoveable save in the most exceptional circumstances and for that purpose, for instance, late instructions from client, change in the team of lawyers, the absence of prejudice to the other party which cannot be compensated for by costs, will not be treated as exceptional circumstances.

8. Despite the able submission of Ms Eu, I do not find that there are exceptional circumstances in the present case to justify the variation of the milestone date, ie the trial date.  Although the change of senior counsel is beyond the control of the defendant, he knew that Mr Yuen might not be able to conduct the trial as early as 29 May 2012 which was nearly 3 months before the commencement of trial.  In such circumstances, there should have been more than sufficient time for the defendant to engage some other appropriate counsel to conduct the case on his behalf.

9. Further, the defendant’s solicitor had only contacted 4 senior counsel in one set of chambers, and there should have been many other bilingual senior counsel in other chambers who would be available to take up the case.  Even if no other senior counsel is available, which I do not accept it to be the case, there should be many other junior counsel who have the sufficient ability and experience to handle a case of this nature which mainly involves issues of fact.  Hence in my judgment, there is no interference with the defendant’s right about the choice of lawyer and his right to have a fair trial is not jeopardised in the present case. 

10. It is also not appropriate to say is that no prejudice would be caused to the plaintiff by the adjournment of the trial which cannot be compensated for by costs.  The subject agreement of the claim was made in 2003.  The present proceedings were commenced by the plaintiff in June 2009.  The plaintiff has a right to have the case be resolved as soon as possible without any undue delay.  Further, anxiety and uncertainty caused by the delay of the resolution of the dispute is certainly a serious prejudice to the plaintiff.  If the trial has to be adjourned, it is likely that the plaintiff would have to wait for another year before the case can be tried.  The court cannot simply ignore such serious prejudice to the plaintiff.  Further, Practice Direction 5.2 expressly provides that the absence of prejudice to the other party which cannot be compensated for by costs will not be treated as exceptional circumstances.

11. There has been a new cultural for the conduct of litigation after the implementation of the CJR.  In managing the progress of the case, the court has to take into account and give effect to the underlying objectives laid down in Order 1A of the RHC, which include increasing costs effectiveness of the litigation and ensuring that a case is dealt with as expeditiously as is reasonably practicable. 

12. After reviewing the facts of the present case, I do not find that there are exceptional circumstances to justify the variation of the milestone date.  I therefore refuse the defendant’s application to adjourn the trial date. 

Mr Martin Wong, instructed by Chong & Partners, for the plaintiff

Ms Audrey Eu, SC and Mr Victor Cheung, instructed by Chong, Fu & Co, for the defendant

HCA 1336/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1336 OF 2009

----------------------

----------------------

----------------------

D E C I S I O N

----------------------

1.  This is an application by the defendant to stay the action in favour of the Intermediate People’s Court of Yuexiu District of Guangzhou Metropolis.

The Plaintiff’s Case

2.  The plaintiff claims HK$12,500,000 from the defendant as the consideration for his sale to the defendant of 9,999 shares of and in a Hong Kong company Huge Faith Holdings Limited (“Huge Faith”).

3.  The plaintiff pleaded in his statement of claim that the Intermediate People’s Court of Guangzhou in 2003, wanted to sell a property by auction.  The plaintiff was interested in bidding for the property and wanted to find a partner to do so.  Through the introduction of one Mr Cheng, the plaintiff and the defendant came to know each other and agreed to take part in the bidding together.  They further agreed that the bidding should be carried out by a Mainland company controlled by the defendant and called Wanling Enterprise (Shenzhen) Company Limited (“Shenzhen Wanling”).  This is a company incorporated in the Mainland by the defendant.  The defendant in his affirmation said that Shenzhen Wanling was owned by a Hong Kong company Tat Yeung Holdings Limited (“Tat Yeung”).  Tat Yeung was also under the defendant’s control.

4.  The plaintiff further pleaded in his statement of claim that if the bidding should be successful, Shenzhen Wanling would transfer all its rights in the property to a new company, to be owned by the plaintiff as to 10% and the defendant as to 90%. 

5.  The bidding was indeed successful, and Shenzhen Wanling entered into an agreement dated 1 November 2003 with the auctioneers to confirm the auction sale.  The price was at RMB 548 million.

6.  A Mainland company called Guangzhou City Wanling Property Company Limited (“Guangzhou Wanling”) was then incorporated to hold the property.  The plaintiff then procured Huge Faith to hold his 10% shares in Guangzhou Wanling. 

7.  Huge Faith issued and allotted a total of 10,000 shares.  Of these shares, 9,998 shares were allotted to the plaintiff.  The plaintiff also held one promoter share.  The remaining promoter share was held by a director of Huge Faith, Mr Chan.  The defendant said on affirmation that Mr Chan has already passed away.  The plaintiff is the other director of Huge Faith. 

8.  Guangzhou Wanling was incorporated in Guangzhou in December 2003.  The application form submitted to the Guangzhou Government for incorporating Guangzhou Wanling stated that the three proposed shareholders were Shenzhen Wanling as to 30%, Tat Yeung as to 60% and Huge Faith as to 10%.

9.   The plaintiff then pleaded that he had a dispute with the defendant on the management of the property.  They then orally agreed in Hong Kong on 18 December 2003 that the defendant would purchase the plaintiff’s 9,999 shares in Huge Faith so that the plaintiff could withdraw from the investment project.  The price was agreed at HK$12,500,000 and payable within 120 days after the transfer of these shares. 

10.  The bought and sold note and the instrument of transfer were prepared for the plaintiff’s signature on 20 December 2003.  They were presented to him by the other director of Huge Faith, Mr Chan.  The plaintiff saw that the consideration stated in the documents was HK$9,999.  Mr Chan explained to him that that was in accordance with the usual rule in Hong Kong and assured him that the defendant had agreed and promised to abide by the share transfer agreement and would pay him HK$12,500,000 within 120 days from 20 December 2003.  A Mr Tang, who was with the plaintiff in the trip to Hong Kong, then drafted a memorandum confirming the transfer price at HK$12,500,000.  The plaintiff then signed a memorandum and share transfer documents and passed them to Mr Chan for the defendant’s signature.

11.  However, despite repeated requests, the defendant did not sign the memorandum or make any payment to the plaintiff.  The plaintiff later made inquiries with the Guangzhou Metropolis Administration Bureau of Commerce and Industry and found that when Guangzhou Wanling was formally registered, its shareholders were only Shenzhen Wanling and Tat Yeung.  He also found that there was a letter from Huge Faith filed with the Bureau confirming the withdrawal of Huge Faith from the investment in Guangzhou Wanling.  The copy of this letter as produced by the plaintiff on affirmation was dated 6 January 2004, which was more than two weeks after the plaintiff had signed the share transfer forms.  The letter does not contain any signature, but only the chop mark of Huge Faith.

12.  The plaintiff’s later inquiry with Mr Chan of Huge Faith on 15 January 2004 showed that the defendant had not signed the memorandum.  Since the defendant had failed to pay the HK$12,500,000, the plaintiff therefore started this action on 4 June 2009.

The Affirmations

13.  The defendant has not filed any defence but issued a summons for staying the action on 15 July 2009.  The defendant in his affirmation in support of the application said that he was a resident of Hong Kong and the plaintiff was a Mainland resident.  He denied that the plaintiff had planned to or taken part in the bidding of the property.  He said he had, through Shenzhen Wanling, successfully bid for the property on 1 November 2003.  The plaintiff then, through Mr Cheng, sounded out his interest in participating in the project of managing the property.  The parties then agreed that the plaintiff could have 10% of the investment, but he had to pay 10% of the price, auction fee and tax on the due day stated in the auction confirmation agreement.  It was also agreed that the plaintiff’s participation would be through his company Huge Faith to hold 10% of the shares of Guangzhou Wanling or RMB 20 million share capital of Guangzhou Wanling.  The total capital of Guangzhou Wanling at RMB 200 million should be fully paid by the parties before 15 December 2003. 

14.  This preliminary agreement was reflected in the application form submitted to the Guangzhou Administration Bureau for Commerce and Industry for incorporating Guangzhou Wanling.  However, the defendant and Huge Faith could not put in the RMB 20 million before 15 December 2003 and the joint venture was therefore terminated.

15.  The plaintiff and Huge Faith had not incurred any money in the property project.  The plaintiff, therefore, voluntarily withdrew from the project and Shenzhen Wanling and Tat Yeung then invested in Guangzhou Wanling.  All subsequent incorporation and registration procedure for setting up Guangzhou Wanling were done by Shenzhen Wanling and Tat Yeung to the exclusion of Huge Faith. 

16.  Since the plaintiff had no use for Huge Faith, the defendant, at the plaintiff’s request, agreed to take over the plaintiff’s shares of Huge Faith at HK$9,999.  The defendant denies that he had ever agreed to purchase these shares at HK$12,500,000.  The plaintiff later made a sudden demand for HK$12,500,000 but the defendant declined the demand. 

17.  The defendant also said that after his refusal to pay the HK$12,500,000, the plaintiff used triads to cause him troubles.  He therefore signed two documents dated 24 May 2005, agreeing to pay consultation fees of RMB 6,500,000 and RMB 1 million respectively to the plaintiff’s company.  His company later paid half of the sums.  For the remaining half, his company was sued by the plaintiff company to judgment, and the judgment was then satisfied by his company.

18.  At the end of the affirmation, the defendant said that the plaintiff’s claim arose out of the plaintiff’s alleged 10% shareholding in Guangzhou Wanling, which in turn arose out of the alleged investment agreement made in October 2003.  The dispute should therefore be dealt with by the courts in the Mainland.

19.  He also referred to the previous proceedings by the plaintiff’s company against his company which arose out of problems of the property held by Guangzhou Wanling.  Those proceedings were brought in the Intermediate People’s Court in Yuexiu District of Guangzhou. 

20.  He also said that the alleged agreement relied on by the plaintiff was allegedly made in the Mainland and should be subject to the Mainland’s laws.  The Mainland’s courts are therefore most appropriate to adjudicate the dispute.  However, I think he was factually incorrect on this.  The plaintiff’s case as pleaded in the statement of claim is that the oral share transfer agreement was made in Hong Kong and not in the Mainland.

21.  The defendant also said that the dispute relates to Shenzhen Wanling and Guangzhou Wanling, which are companies incorporated in the Mainland.  These companies have to abide by the Mainland’s laws.  He also said that he would call three friends as witnesses, as these friends had on different occasions witnessed the discussions between him and the plaintiff on their joint investment in the property.  He said it is inconvenient for these people to come to Hong Kong.

22.  The plaintiff opposed the application.  He said in his first affirmation that the property was auctioned by the Intermediate People’s Court in Yuexiu District of Guangzhou.  He learned about this in May 2003 and was interested in it.  He knew that the Intermediate People’s Court wanted to sell the property for no less than RMB 690 million.  His friend Cheng then introduced him to the defendant as his partner in this investment.  The defendant thought that a reasonable price for the property should be RMB 630 million.

23.  On about 26 September 2003, he negotiated with the responsible officials and the officials promised to try to bring the price down to RMB 570 million.  This was well below the figure of RMB 630 million.  The defendant was very pleased because at this price the investment would be profitable.  The plaintiff continued with his negotiation and eventually convinced the officials to bring the price further down to RMB 550 million.  Eventually, the property was sold to Shenzhen Wanling at RMB 548 million. 

24.  The difference between the actual price and the initial reserve price of RMB 690 million was RMB 142,000,000.  When the plaintiff negotiated with the defendant for the sale of his shares in Huge Faith, he took this as the profit of the investment.  He therefore used 10% of this profit and rounded it up to RMB 15 million as his asking price.  However, the defendant was only prepared to pay him HK$12,500,000 for his Huge Faith shares.  Eventually, the parties agreed at this price. 

25.  He also said that after the defendant had obtained his 9,999 Huge Faith Shares, the defendant had also obtained the right to use the chop of Huge Faith and applied the chop on the letter from Huge Faith to the Guangzhou Metropolis Administration Bureau of Commerce and Industry and dated 6 January 2004 to procure the withdrawal of Huge Faith from the investment in Guangzhou Wanling.

26.  The defendant filed his second affirmation to respond to the plaintiff’s affirmation.  He denied that there was the initial reserve price of RMB 690 million or that the plaintiff had successfully negotiated for the reduction of the reserve price.  He said the auction was by reverse pricing.  It started at RMB 650 million and moved downward.  Shenzhen Wanling successfully bid for it at RMB 548 million when the bidding came down to RMB 560 million.  He therefore denied that there was any price difference of RMB 142 million or that he had agreed to purchase the plaintiff’s Huge Faith shares at HK$12,500,000.  Regarding the letter from Huge Faith to the Guangzhou Metropolis Administration Bureau of Commerce and Industry and dated 6 January 2004, he denied knowledge of who had lodged it with the Bureau.

27.  The plaintiff made a further affirmation in reply.  He produced some evidence to show that valuation evidence on the property can be made available in Hong Kong by Hong Kong surveyors. 

28.  The defendant in his third affirmation agreed that Hong Kong surveyors could provide valuation evidence on the property in Guangzhou.  However, he maintained his dispute that the government had a reserve price or that the reserve price was no less than RMB 690 million as alleged by the plaintiff.

29.  He doubted whether the plaintiff could summon the Mainland officials to give evidence in Hong Kong courts.  He also produced a Mainland legal opinion to support his view.  However, the legal opinion says that whether the officials of the Mainland government would or would not give evidence in court is a matter for the relevant government department.   If that is the case, then I do not think the Mainland courts would be in a better position than the Hong Kong courts in summoning the officials to give evidence.  The Mainland lawyers did opine that the Mainland courts are in a better position to summon the officials to give evidence, but they have given no reason for this opinion and I do not think I can rely on it. 

30.  The defendant also repeated his denial of any involvement with the filing of the letter dated 6 January 2004 with the Guangzhou Bureau.  He suggested that this issue could be resolved by seeking discovery by the Bureau and to summon the Bureau’s officials to give evidence.

The Legal Principles

31.  The principles that govern this type of application have been set out in many cases.  I would refer to the judgment of Cheung JA in Pei Zheng Middle School and Another v China Pui Ching Education Foundation Limited and Others, CACV262/2005, at paragraphs 11 and 12:

“Forum non conveniens

11. The House of Lords in Spiliada Maritime Corp. v Cansulex Ltd, The Spiliada [1987] 1 A.C. 460, has set out the principles governing stay of proceedings by reason of forum non conveniens or forum conveniens (the terms are the same).  The principles are adopted in Hong Kong by this court in The Adhiguna Meranti [1987] HKLR 904, (Yang VP, as he then was, Hunter JA and Nazareth J, as he then was, and Louvet v Louvet and Another [1990] 1 HKLR 670 (Fuad VP, Hunter and Penlington JJA).

12. I have in the recent case of DGC v SLC nee C, CACV37/2005, summarised the principles as follows:

(1)   The single question to be decided is whether there is some other   available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

(2)   In order to answer this question, the applicant for the stay has to   establish that first, Hong Kong is not the natural or appropriate     forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong.  Failure by the applicant to establish these two matters at this stage is fatal.

(3)   If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

(4)   If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer.  Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.”

The Defendant’s Arguments and Analyses

32.  The defendant’s counsel summarised what he called the present issues between the parties as follows:

“(1) whether there was an agreement reached between the plaintiff and the defendant to jointly take part in bidding the property, if so, what actually was agreed between the plaintiff and the defendant in respect of the joint venture business;

(2)   whether there was an oral agreement reached between the plaintiff and the defendant in respect of the sale and purchase of the plaintiff’s shares in Huge Faith to compensate the plaintiff for his withdrawal from the joint venture business; if so, what was the consideration for the transfer of the Huge Faith shares;

(3)   what was the reserve auction price of the property as fixed by the Intermediate People’s Court of Guangzhou and/or its auctioneers;

(4)   whether the document of Huge Faith’s withdrawal from the investment, i.e. the letter dated 6 January 2004, as submitted to the Guangzhou Administration Bureau for Commerce and Industry was filed by the plaintiff or the defendant;

(5)   whether the amount of compensation for the plaintiff’s withdrawal from the joint venture business should be based on the difference between the reserve auction price of the property fixed by the Intermediate People’s Court and the actual purchase price of the property, or the market value of the property at the material time, or the actual loss suffered by the plaintiff.”

The defendant therefore puts the plaintiff to strict proof of all the plaintiff’s allegations. 

33.  Counsel for the defendant submits that the Mainland courts are clearly and distinctly more appropriate than Hong Kong courts in trying this action.  Counsel said the crux of the dispute is the alleged compensation for the plaintiff’s withdrawal from the joint investment or joint venture; hence the reserve price fixed by the Guangzhou Intermediate People’s Court or its auctioneers is a crucial issue.

34.  Counsel then submitted that the property is in Guangzhou and is subject to the laws of the Mainland.  The plaintiff and many potential witnesses are Mainland residents.  The vendor of the property is the Guangzhou Intermediate People’s Court.  It is the vendor and/or its auctioneers who fixed the auction price.  Many important documents are kept by the Guangzhou Court or the auctioneers.  It is therefore anticipated that the officials of the court or their representatives will have to be summoned to give evidence on the reserve price, if any.

35.  However, I do not think these factors can support the defendant’s application for stay.  It is the plaintiff who alleges that he was interested in the property back in May 2003, and had done a lot of work to negotiate for a lower reserve price from RMB 690 million downwards.

36.  The defendant’s case is entirely different.  The defendant’s stance is that the plaintiff only showed interest in investing in the property with him after he had, through Shenzhen Wanling, bid the property for RMB 548 million in November 2003.  Before that, the plaintiff was not in the picture at all.  So the defendant has no positive case to prove on the plaintiff’s alleged reserve price or negotiation.  All the problems about making witnesses and documents available to this court to prove the reserve price and the negotiation are the plaintiffs’.  If the plaintiff should fail to prove his case, it is a matter for him.  These factors do not affect the defendant at all.

37.  Regarding the letter of 6 January 2004, the defendant does not know if the officials of the Bureau can or cannot tell who had filed this letter.  He thinks that discovery will give the clue.  If I should stay the action, there will be no discovery, so I think counsel was referring to discovery by the Bureau.  But there is no evidence on whether the Bureau can or cannot be ordered to make discovery of its documents, or whether the officials and/or the documents to be discovered will or will not give a clue as to who filed the letter.  I therefore cannot rely on this submission. 

38.  Counsel also referred to the difficulty of summoning officials to give evidence in this court.  I have already dealt with this point above when discussing the Mainland legal opinion.

39.  Counsel summed up by saying that the documentary evidence and oral evidence of the officials and/or the auctioneers are material.  But I think they are only material to the plaintiff as the defendant has no positive case to prove against the plaintiff on the reserve price or negotiation. 

40.  The defendant has indeed said that he would call several Mainland residents to testify on the discussion between him and the plaintiff on their investment in the property.  But it has been decided in this court on many occasions that the inconvenience for Mainland residents to come to this court to give evidence is not a factor in favour of staying proceedings in this court in favour of the Mainland courts.

41.  Counsel also referred to the previous proceedings brought by the plaintiff’s company against the defendant’s company in the Yuexiu Intermediate People’s Court and submitted that there are common questions of law and facts between those proceedings and this action, but those proceedings have already been disposed of and the judgment satisfied.  I see no basis to take those proceedings into account in deciding this application.

42.  Counsel also referred to the agreement between Huge Faith, Tat Yeung and Shenzhen Wanling on the incorporation of Guangzhou Wanling and said that the agreement provided for arbitration in the Mainland in case of dispute between the parties, but I think that agreement is merely part of the background of this dispute.  This dispute is focused on the oral agreement for sale and purchase of the plaintiff’s 9,999 shares of and in Huge Faith.

43.  In the premises, I find that the defendant has failed to establish that Hong Kong is not the natural or appropriate forum, or that the Yuexiu Intermediate People’s Court is clearly or distinctly more appropriate than this court. 

44.  In case I were wrong, and that I had to consider the next stage, I would find that the plaintiff has failed to establish that he will be deprived of any legitimate personal or juridical advantage if the dispute should be tried in the Guangzhou Court.

Decision

45.  I therefore dismiss the defendant’s application for stay.  I further make an order nisi that the defendant do pay the plaintiff the costs of this application now.