in the high court of the
hong kong special administrative region
court of appeal
civil appeal no. 351 of 2005
(on appeal from HCA NO. 1434 of 2004)
Before : Hon Rogers VP, Le Pichon JA and Chu J in Court
Date of Hearing : 19 May 2006
Date of Judgment : 19 May 2006
Date of Handing Down Reasons for Judgment : 23 May 2006
REASONS FOR JUDGMENT
Hon Rogers VP:
1. This was an appeal from a judgment of Deputy High Court Judge Gill given on 23 September 2005. The action before the judge wasfor a declaration that the plaintiff had validly rescinded 2 contracts which the plaintiff claimed he had been induced to enter intoby reason of undue influence by the defendant and upon misrepresentations. The plaintiff claimed the return of something over $4.5million and in the alternative damages. The judge held that there had been no undue influence and that although a misrepresentationhad been made the plaintiff had not been induced to enter into the contracts in reliance on that misrepresentation and hence theclaim failed.
2. The plaintiff did not appeal the finding in respect of undue influence but confined the appeal to the question as to whether thejudge was correct in finding that the plaintiff had not relied upon the misrepresentation. This court dismissed the appeal at theconclusion of the hearing with reasons to be given in writing.
3. The plaintiff is a barrister and in paragraph 5 of the judgment, the judge set out his qualifications and experience. He describedthe plaintiff’s curriculum vitae as being “interesting and varied”. Amongst other things the plaintiff has taught in universities both in Canada and in HongKong for a considerable time in business and accounting related subjects. He is also a qualified accountant in Texas as well ashaving his legal qualifications. The plaintiff has also written a series of books the titles of which indicate that the plaintiffis in a position to offer advice to those who are considering financial investments.
4. The plaintiff became acquainted with the defendant towards the end of 2000. In the course of that acquaintance the defendant introducedthe plaintiff to a number of investments which, apparently, produced a significant return for the plaintiff. Towards the end of2002 the defendant approached the plaintiff with a suggestion that he might buy an interest in a company concerned with the provisionof services to mortgage providers. The company, Integral Mortgage Corporation Pty Ltd (“IMC”) was an Australian company. Theoriginal suggestion was that there would be a public flotation of the business which would reap substantial profits to the originalinvestors.
5. In December 2002 the plaintiff paid $3.25 million for a 40% interest in a company by the name of Ultrawealth Management Ltd (“UML”). That interest represented an 8% interest in IMC. The judge found that at the time the plaintiff was given the accounts for theyears ending June 2001 and 2002. Those accounts would appear to be rudimentary. Nevertheless the accounts for the year to June2001 showed a very substantial loss. The accounts for the year to June 2002 showed a very modest profit but, as the judge noted,that was because there had been a capital transaction. After making the initial investment the plaintiff went to Sydney and metthe staff of IMC and, as the judge found, made himself familiar with the mechanics of its operation.
6. In May 2003 the plaintiff purchased another 10% of UML from the defendant for $700,000. He thus had a 10% share in IMC. Thereafterin February and June 2003 and February 2004 the plaintiff paid money to IMC in respect of listing and operating expenses. Eventually2004 it became clear that the proposed listing of IMC would not take place.
7. As already indicated the judge found that there had been a misrepresentation. That misrepresentation was that the shares whichthe plaintiff bought were held by the defendant, not in his own right, but in trust for an undischarged bankrupt namely James Lee. Despite the defendant’s protestations to the contrary the judge held in paragraph 26 of his judgment that he was satisfied thatthe plaintiff had been told that the shares belonged to James Lee with the intention to deceive him. In paragraph 29 he said thathe was satisfied that this was done for the purpose of inducing the plaintiff to buy the shares.
8. The judge then went on to consider the question as to whether the plaintiff did buy the shares because of that inducement. Afterobserving that the plaintiff made no inquiries about James Lee and, indeed, observing that the plaintiff might have put himself insome difficulty if he had made too many inquiries about buying shares which belonged to an undischarged bankrupt, the judge observedin paragraph 29:
9. The appeal against that finding of fact was based on the proposition encapsulated in the statement made by Morritt LJ in the caseof Barton and others v County Nat West Ltd  All ER (D) 782 at paragraph 54 where the judge said:
10. But as Morritt LJ went on to say in paragraphs 58 onwards the presumption is one of fact and capable, like any other such presumption,of being rebutted. In my view the judge was amply justified in taking the view which he did. He examined the facts and the circumstancesof the parties in detail and in particular he considered the evidence given by the parties and, it would be noted, did not accepteverything that the defendant said. Nevertheless, he came to the conclusion that the plaintiff had not relied upon the representationwhen he was considering making the investment in a company which he knew well was making a loss but hoped to gain from its eventualflotation on the stock market. That flotation never took place. In the light of those facts it would seem that the major argumentput forward on this appeal that the plaintiff thought he would be getting a bargain price by buying from a bankrupt is beside thepoint. On the judge’s finding the plaintiff’s intent was to make a handsome profit on listing and that never happened. I seeno basis for interfering with the judge’s finding of fact. For that reason I considered that this appeal fell to be dismissed.
Hon Le Pichon JA:
11. I agree.
Hon Chu J:
12. I agree.
Mr Philip Wong, instructed by Messrs Chiu, Szeto & Cheng, for the Plaintiff/Appellant
Mr Robert Y H Pang, instructed by Messrs Huen & Partners, for the Defendant/Respondent