Final App No 2-2010 (Civ)

IpsofactoJ.com: International Cases [2011] Part 4 Case 8 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Yukio Takahashi

- vs -

Telford Road & Bridge

Investments Co Ltd

JUSTICE KEMAL BOKHARY PJ

JUSTICE PATRICK CHAN PJ

JUSTICE R.A.V. RIBEIRO PJ

JUSTICE MORTIMER NPJ

LORD HOFFMANN NPJ

4 MARCH 2011


Judgment

Justice Bokhary PJ

  1. At the conclusion of the hearing, we announced our decision to dismiss the appeal. Costs were awarded to the respondent, who sought them, against the appellants, who did not resist them. We now hand down our reasons for dismissing the appeal. They are contained in the judgments of Mr Justice Ribeiro PJ and Lord Hoffmann NPJ.

    Justice Ribeiro PJ

  2. This appeal arose out of the appellants’ claim against the respondent for restitution of HK$50 million on the basis of a total failure of consideration. It had succeeded before Fung J ([2008] 5 HKLRD 292) but his Lordship’s decision was reversed by the Court of Appeal (2010] 1 HKLRD 603 (Tang VP, Le Pichon and Yuen JJA)).

  3. The appellants comprise Mr Yukio Takahashi (“Mr Takahashi”) and San Marino Trading Co Ltd (“San Marino”), a company owned by Mr Takahashi. I shall refer to them together as “the plaintiffs”. The only respondent in this appeal is Telford Road and Bridge Investments Co Ltd (“Telford”), which was the 3rd defendant at the trial. Much of what occurred was done through Telford’s mainland subsidiary referred to as “Wuhan Telford”, but the parties are agreed that there is no need to distinguish between the two companies.

  4. The payment of HK$50 million which the plaintiffs seek to recover was made in the context of three back-to-back contracts and a joint venture agreement concerning a project for the financing, construction and operation of a toll highway known as the “Han-Xiao Highway” linking the cities of Wuhan and Xiaogang in Hubei Province (“the highway project”). The back-to-back agreements were for the transfer of the right to undertake the highway project successively down the chain of contracts with the plaintiffs acting in a joint venture with 1st and 2nd defendants at the end of that chain.

    A. THE FACTS

    A.1 The first two contracts

  5. The original agreement (which I shall call “the WTC contract”) was between Telford and the Wuhan Transport Committee (“WTC”), an organ of the Wuhan municipal government.

  6. Having previously signed a letter of intent[1] and obtained the blessing of the Hubei provincial planning authorities,[2] WTC and Telford entered into an agreement dated 23 September 2003 whereby Telford would fund, construct and operate the highway project (although Telford was required to “entrust” the construction works to WTC). Construction was to take four years and Telford was to have the operating rights for 30 years. A project company would be formed and in due course,[3] Hubei Han-Xiao Highway Construction and Operations Co Ltd (“Han-Xiao”) was established.

  7. Telford’s principal obligation was to secure the necessary funding. The project required an investment estimated at RMB884 million, of which RMB309.55 million was to be contributed as capital and RMB574.88 million was to be funded by bank loans. Telford had to “ensure that 35% of foreign capital [would] be available according to the Project’s preliminary design approval documents” and to “be responsible for the raising and monitoring of funds for the Project, ensuring that the capital is available and entirely used for project construction as stipulated in the [Construction Entrusting Contract]”.

  8. The second contract (which I shall call “the China Score contract”) was between Telford and the 4th defendant, China Score Investments Limited (“China Score”). Like Telford, China Score acted in various respects through its mainland subsidiary, but again the parties have treated them as if they were a single entity.

  9. By a contract dated 18 September 2003 (pre-dating the WTC contract) entitled “Preliminary Transfer Agreement”, Telford agreed to transfer its (anticipated) rights and obligations regarding the highway project to China Score for a transfer fee of RMB40 million. China Score undertook to make a capital investment of HK$200 million, with a first instalment of HK$50 million. Its promise was secured by a HK$5 million deposit which would be forfeited if the transfer fee and investment did not materialise. Upon China Score performing its part, Telford undertook to complete the procedures for transferring the project within three days.

  10. On 23 September 2003, the day on which the WTC contract was signed, China Score paid Telford the HK$5 million deposit required under the China Score contract. The first two back-to-back contracts were therefore in place.

    A.2 The joint venture and the third contract

  11. As indicated above, the plaintiffs’ participation in the highway project was via a joint venture with the 1st and 2nd defendants. The 1st defendant, Mr Cheng Zhen Shu (also known as Mr Chui Tsang-ping and referred to here as “Mr Cheng”), owned the 2nd defendant, Chinluck Group Limited (“Chinluck”). Mr Cheng had had previous dealings with Mr Takahashi and, as at 30 September 2003, he owed Mr Takahashi’s companies some US$6.6 million. Those companies were San Marino, Organized Associates Limited (“Organized Associates”) and ETO Co Ltd (“ETO”). Judgments had been obtained by Organized Associates and ETO against Mr Cheng in sums totalling about US$4.59 million.

  12. Mr Cheng approached Mr Takahashi suggesting that he would be able to discharge those debts if they were jointly to invest in the highway project. He painted an attractive picture of the project and told Mr Takahashi that Telford had already agreed to transfer its rights in the project to China Score and that China Score had in turn agreed to assign its rights to his company Chinluck. Mr Cheng told Mr Takahashi that if the latter were to contribute about HK$60 million to the joint venture, Mr Cheng would be able to obtain a HK$150 million bank loan which could be used to repay Mr Takahashi’s companies.

  13. Mr Takahashi was persuaded and handed to Mr Cheng a cashier order for HK$10 million dated 8 October 2003, made payable to him personally. Mr Cheng issued a receipt of the same date promising to return that sum if “our company is unable to acquire the contract for the [highway] before 15 October 2003”.

  14. On 15 October 2003, China Score and Chinluck duly signed a contract headed “Transfer Agreement”, which I shall call “the Chinluck contract”. It recited that China Score “already owned the legal interests in the development and construction of the Project” and agreed to transfer them to Chinluck. The latter would pay China Score HK$5 million on signing and also a transfer fee of HK$60 million. Chinluck furthermore agreed to pay to China Score “the Project’s capital of HK$50 million before 15 November” and undertook that an additional HK$150 million would be paid “via Telford” before 15 December. The Chinluck contract went on to provide that upon receiving the first instalment of HK$50 million, China Score would complete the procedures for transfer within 14 days, with Chinluck to be made “the legal person representative of the project company”. The third back-to-back contract was therefore concluded.

  15. On the following day, 16 October 2003, a meeting was held between Mr Takahashi and Mr Cheng in Xiamen where the terms of their joint venture were confirmed and minuted.

    1. It was noted that the total investment required was in the sum of RMB884.43 million of which 35% or RMB309.55 million was to be project capital and the remainder or RMB574.88 million was to be bank finance. In relation to capital, they agreed that Mr Cheng would invest 51% or RMB157.87 million and Mr Takahashi, 49% or RMB151.68 million.

    2. They agreed that Mr Takahashi should first contribute capital of HK$60 million before 15 November 2003 “to activate the Project” of which HK$50 million would be used to secure a shareholding transfer from Telford and China Score.

    3. They confirmed the terms of the China Score and Chinluck contracts and noted that HK$150 million had to be paid to Telford before 15 December.

    4. Mr Cheng undertook:

      .... that after obtaining the HK$150 million for use, he will first reimburse the HK$70 million borrowed from Mr Takahashi .... [and] the responsibilities for returning the capital of HK$50 million plus HK$150 million (ie, $200 million in total), while enjoying the right to use the remaining capital of the HK$150 million.

    5. The minutes then set out various matters which required to be resolved, including

      (i)

      the circumvention of investment risk, especially the provision and operation of the HK$50 million; and

      (ii)

      the raising of capital ... of RMB574.88 million from banks.

  16. It follows that by mid-October 2003, the transactions relevant to the present appeal were in place. They had two essential features. First was a series of agreements to transfer - from Telford to China Score and on to Chinluck (with Mr Takahashi as an undisclosed joint venture partner) - the right to participate in the highway project in consideration of transfer fees of RMB40 million and HK$60 million respectively. The second was that each transferee took over the obligation originally undertaken by Telford to provide investment and banking finance for the project. The back-to-back contracts dealt with an initial tranche of such investment involving a capital contribution of HK$50 million and bank loans of HK$150 million.

    A.3 Payments made

  17. Pursuant to the joint venture agreement, Mr Takahashi and San Marino delivered three cashier orders totalling HK$50 million, naming Telford as payee, to Mr Cheng and Chinluck on 23 October 2003. A receipt of the same date for HK$60 million (covering also the HK$10 million cashier order delivered earlier) was issued to San Marino by Chinluck, acknowledging that the money was “capital invested by San Marino” in the highway project.

  18. Chinluck handed on the three cashier orders to China Score. Receipt was acknowledged by an undated document and by a “Letter of Undertaking” dated 23 October 2003, describing the amount as Chinluck’s capital investment in accordance with the Chinluck contract. China Score undertook to complete the registration procedures for Han-Xiao with Mr Cheng named as the legal representative and to sign the formal contract with WTC. Mr Cheng promised to provide the HK$150 million balance of the project investment before 15 December 2003, “failing which, all the share transfer shall be deemed ineffective.”

  19. China Score then handed the cashier orders to Telford and, on 6 November 2003, Telford issued its receipt for HK$50 million. On 11 November, Mr Cheng was registered as the Legal Representative of Han-Xiao (which had registered its Articles of Incorporation on 28 October 2003).

  20. There followed a Formal Agreement dated 1 December 2003 between Telford and China Score which stated that “regarding the amount of foreign exchange and transfer fee”, China Score “has already completed its duties according to the Preliminary Transfer Agreement”. It also recited that Telford had “already completed the relevant formalities for project transfer as stipulated in the Preliminary Transfer Agreement” and that registration of Han-Xiao was completed, adding that “the legal person has been changed and the relevant documents are ready”, with handing over to occur on signing. It concluded by stating:

    From the date of signing of the formal agreement, Telford shall formally withdraw from the Project. China Score shall formally perform its duties, including the liabilities, debts, interests generated by the Project thereafter; and the relevant legal matters in respect of various aspects of the Project shall be taken over and borne by China Score.

    Telford also issued to China Score a receipt for RMB40 million dated 2 December 2003, representing the transfer fee.

    A.4 Breakdown of the joint venture

  21. It follows that by the end of 2003, the agreed transfers had been completed and the project as devolved down to Chinluck had been “activated” as Mr Takahashi and Mr Cheng had envisaged in their Xiamen meeting on 16 October 2003. However, the devolved project proceeded no further and no additional investments were made by the plaintiffs.

  22. The Judge did not make a specific finding as to why the plaintiffs’ participation came to a halt although he held that “the fault did not lie with him (Mr Takahashi)” (Judgment §108). A document headed “Summary of Basic Information” dated 10 February 2004 and a report dated 27 February 2004 addressed to Mr Takahashi both indicate that two fundamental obstacles encountered by the plaintiffs were (i) the inability to use the bank loans to pay off Mr Cheng’s debts to Mr Takahashi’s companies; and (ii) the fact, which Mr Cheng had not disclosed, that construction of the works had been entrusted from the outset to WTC so that anticipated cost cuts could not be achieved and a substantially larger investment would be required. The report stated that Mr Cheng recommended cancelling the investment project and had undertaken to recover the HK$60 million paid by Mr Takahashi.

  23. On 16 February 2004, China Score and Telford entered into a Re-Purchase Agreement whereby Telford agreed to resume its position as the investing party and to repay the transfer fee (subject to adjustments) which it had received from China Score. However, the Judge held that the HK$50 million which China Score had also provided as a capital investment in the form of the three cashier orders was retained by Telford and never returned to China Score (Judgment §§97 and 98). He also accepted that notwithstanding a receipt which Mr Cheng had issued purporting to acknowledge receipt of RMB54 million from China Score, no such sum was ever received by Mr Cheng (Judgment §§71-81).

    A.5 Commencement of proceedings

  24. The plaintiffs brought proceedings against Mr Cheng, Chinluck, Telford and China Score. On 7 December 2005, China Score was compulsorily wound up on the plaintiffs’ petition. And on 9 April 2008, Mr Cheng and Chinluck consented to a Tomlin order whereby the action instituted by writ (HCA 2115/2004) was stayed on their agreeing pay HK$162.37 million to the plaintiffs, and to Organized Associates and ETO. Only the first instalment of HK$1 million was paid and judgment was entered against those defendants for the balance. It appears that no further recovery was made. That left Telford as the remaining defendant. As noted above, the plaintiffs succeeded at trial but lost in the Court of Appeal.

    B. THE PLAINTIFFS' CASE ON THE PRESENT APPEAL

  25. The plaintiffs’ case against Telford[4] is summarised in their Printed Case as follows (at §§7-10):

    1. The plaintiffs made the HK$50 million payment “upon the expectation that” they would “acquire the right to participate in the Project”. This was the consideration they had bargained for.

    2. Mr Takahashi caused the cashier orders to be made payable to Telford because he wanted to ensure that Telford, which “actually owned the rights to the Project” would receive the money.

    3. In the end, the plaintiffs did not acquire any rights in the Project either because Telford never transferred them to China Score or because, having initially so transferred them, Telford re-acquired those rights so that China Score never transferred any rights to Chinluck.

    4. Neither Mr Cheng nor Chinluck returned to the plaintiffs any part of the HK$60 million they had received.

    5. Accordingly, having retained both the HK$50 million from the plaintiffs and the rights under the Project, Telford has been unjustly enriched at the expense of the plaintiffs.

  26. In his legal argument, Mr Benjamin Yu SC[5] adopted the well-known analytical framework often used in restitution cases, posing the questions:

    1. Was Telford enriched?

    2. Was the enrichment at the plaintiffs’ expense?

    3. Was the enrichment unjust?

    On the basis of the plaintiffs’ case as outlined above, he submitted that the answer is “Yes” to all three questions. Accordingly, so the argument ran, the plaintiffs are prima facie entitled to restitution and, no defences being applicable, the Court of Appeal was wrong to reverse the Judge’s decision.

    C. THE LEGAL ISSUES

  27. While I would agree that, having received HK$50 million, Telford was enriched, I do not accept that it was enriched at the plaintiffs’ expense nor that such enrichment was unjust. In the alternative, Telford has a change of position defence.

    C.1 Enrichment not at the plaintiffs’ expense

  28. The suggestion that Telford’s enrichment was at the plaintiffs’ expense is based on the argument that (i) the plaintiffs paid their bankers for the cashier orders which named Telford as the payee; (ii) Telford “received the money directly from the plaintiffs”;[6] and (iii) Telford cashed the cashier orders and kept the money. The payment is said to have been made directly by the plaintiffs to Telford because, so the argument runs, Chinluck and China Score were merely acting as the plaintiffs’ agents or as a “mere conduit pipe” in making the HK$50 million payment to Telford, ibid, §78. The plaintiffs conclude, ibid, §67:

    As the money came directly from the Plaintiffs, and at its ‘ultimate expense’ (Khan v Permayer [2001] BPIR 95 at §40 per Morritt LJ), the enrichment was at their expense. See also Shanghai Tongji at §71. The 3rd Defendant was their immediate enrichee ....

  29. In my view, that argument is fundamentally flawed and rests on a distorted view of the facts. It is true that Mr Takahashi or his companies incurred the expense of acquiring the cashier orders, but the suggestion that the money was paid by the plaintiffs to Telford directly or via agents is untenable.

    1. When, on 23 October 2003, Mr Takahashi handed the cashier orders to Mr Cheng and Chinluck, receiving Chinluck’s receipt,[7] the plaintiffs were discharging their obligation under the joint venture agreement to provide capital of $60 million before 15 November 2003 “to activate the Project”. Mr Takahashi did so in the expectation that Mr Cheng and Chinluck would in turn make their 51% contribution towards the project’s capital; secure a transfer of shares to Chinluck from the upstream parties; and pay off Mr Cheng’s pre-existing debts to Mr Takahashi’s companies using the anticipated HK$150 million bank loan.[8]

    2. When Chinluck handed on the cashier orders to China Score and received the latter’s receipt and “Letter of Undertaking” on 23 October,[9] Chinluck was discharging its obligation to provide HK$50 million of project capital to China Score before 15 November 2003 in accordance with the Chinluck contract.[10]

    3. Then when China Score delivered the cashier orders to Telford, receiving Telford’s receipt dated 6 November 2003,[11] it was discharging its obligation to provide the first instalment of capital investment pursuant to the China Score contract,[12] as acknowledged in the Formal Agreement which Telford and China Score entered into on 1 December 2003.[13]

  30. The abovementioned payments were obviously made by Chinluck and China Score as principals in discharge of their respective contractual obligations and not as agents for the plaintiffs.

  31. It does not follow that because the payee named on the cashier orders was Telford, the plaintiffs were making a direct payment to Telford. The cashier orders were promissory notes (Commercial Banking Co of Sydney Ltd v Edward Rolf Man [1961] AC 1 at 7) issued by the plaintiffs’ bankers unconditionally agreeing to pay Telford their face amounts totalling HK$50 million. Each downstream party in the series of back-to-back contracts was content to accept the cashier orders in discharge of payment obligations contractually owed to them because they knew that such instruments would be acceptable as the means of discharging their own payment obligations to the party immediately upstream until China Score eventually received the cashier orders and paid them over to Telford, the named payee. That is why each of them was content to issue a receipt acknowledging payment effected by such means.

  32. The conceptual framework approved in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67 cannot be applied without properly taking into account the legal relations existing among the persons involved in the transactions said to have resulted in the defendant’s enrichment at the plaintiff’s expense. Telford’s enrichment cannot be shown to have been at the plaintiff’s expense on the basis of a spurious agency relationship. As Tang VP pointed out in the Court of Appeal, paraphrasing Gleeson CJ in Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635 at §45:

    .... the contractual relations, between Telford and China Score, between China Score and Chinluck and, between the plaintiffs and Chinluck, cannot be put to one side as an inconvenient distraction.[14]

  33. The person enriched by the plaintiffs was Chinluck which received the cashier orders and used them to discharge its own obligation to China Score without thereafter performing any of its obligations under the joint venture agreement. The plaintiffs obviously had causes of action for breach of contract or restitution on the basis of total failure of consideration against Chinluck. They did indeed bring such proceedings and obtained judgment against Mr Cheng and Chinluck for some HK$161.37 million, an amount which included the HK$50 million represented by the three cashier orders. The fact that the plaintiffs recovered only HK$1 million was evidently due to Chinluck’s inability or unwillingness to comply with the Court’s order rather than any deficiency in their causes of action. Chinluck in turn may well have had similar causes of action against China Score but, with the latter’s insolvency, proceedings against China Score were not a practical solution.

  34. Prior to its winding-up, China Score reached a settlement with Telford giving rise to the Re-Purchase Agreement. In the present context, that agreement is irrelevant. If, on receiving the HK$50 million, Telford was enriched at the plaintiffs’ expense, an element of the plaintiffs’ cause of action would have been established and it mattered not what Telford thereafter did with the money. Equally, if Telford was not thereby enriched at the plaintiffs’ expense, its subsequent dealings with China Score in relation to the highway project were not relevant. If China Score was not insolvent, it might of course have been sued by Chinluck for the return of HK$50 million and China Score might then in turn have sought recovery of that sum as part of any settlement with Telford. But the fact that China Score did not pursue such a course has no impact on the validity or otherwise of the plaintiffs’ claim for restitution against Telford.

  35. The authorities relied on do not support the plaintiffs’ case.

    1. In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §71, payment was made via banks negotiating a letter of credit and at the plaintiff’s ultimate expense. The banks were simply a conduit for Shanghai Tongji’s payment to Casil. They were not acting as principals discharging any back-to-back liabilities.

    2. In Khan v Permayer [2001] BPIR 95, the plaintiff and his partner originally owed the defendant a debt of £40,000. One Mr Eaves, who like the plaintiff, believed that such debt was still owing, paid it off and then recouped the amount paid from the plaintiff. It was then discovered that they had both been mistaken since the debt had previously been discharged as a result of a voluntary arrangement entered into by the plaintiff. Unsurprisingly, the plaintiff was held entitled to restitution as against the defendant since the mistaken payment had been made at his ultimate expense.

  36. These are decisions dealing with situations which obviously have nothing to do with the present case. Their use of a phrase like “at its ultimate expense” arises in a wholly different and irrelevant context.

    C.2 Enrichment not unjust or change of position

  37. Another reason why the plaintiffs’ claim must fail is that Telford gave consideration for the HK$50 million it received.

  38. It is well-established that where A, with B’s authorisation or consent, pays C money which discharges a debt owed by B to C, C has given good consideration for that payment, precluding any claim by A to recover the money from C on the basis of mistake or total failure of consideration. Thus, after reviewing the authorities,[15] Robert Goff J recognized in Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677 at 695. See also pp 687, 688 and 691 that:

    .... payment is made for good consideration, .... if the money is paid to discharge, and does discharge a debt owed to the payee .... by the payer or by a third party by whom he is authorised to discharge the debt.

  39. In Lloyds Bank plc v Independent Insurance Co Ltd [2000] QB 110 at 125-126, Waller LJ explained the basis of that principle as follows:

    There are, as I see it, two bases which support the fundamental proposition in restitutionary terms. First, arguably, where the debt has been discharged the payment has been made for good consideration. That is the basis expressed in Robert Goff J's formulation in Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677. Goff & Jones, The Law of Restitution, 4th ed, p 134 could be said not to support that basis with wholehearted conviction. But the second basis does have Goff & Jones's support in the same paragraph. If a payment has discharged the debt, then unless an order to return the money reinstates the debt, the payee will have changed his position in no longer having a remedy against the debtor.

  40. In the present case, even if for the sake of argument one accepts that because the cashier orders were made payable to Telford, the plaintiffs made payment directly to Telford, such payment was plainly made with China Score’s authorisation in discharge of China Score’s obligation to pay Telford in accordance with the China Score contract. Such authorisation can be inferred from the fact that China Score itself tendered the cashier orders to Telford as such payment. Telford therefore gave consideration and its enrichment was not unjust or, alternatively, it changed its position in no longer having a remedy against China Score in respect of the amount received.

    D. CONCLUSION

  41. The plaintiffs therefore have no viable claim for restitution and the appeal must be dismissed.

    Lord Hoffmann NPJ

  42. Mr Takahashi has been unfortunate in his dealings with Mr Cheng. In 1998 he advanced about US$6m to him and his corporate entities for a business venture. The money was not repaid. Mr Takahashi sued and obtained judgment, but nothing was recovered. In 2003, however, Mr Cheng proposed a scheme which would enable Mr Takahashi to be repaid his money and make a large profit into the bargain. Mr Cheng said he had acquired the right to construct and operate a toll highway on the mainland between Wuhan and Xiaogang. Such an investment would bring large returns. It was to be financed by a bank loan, some of which could be diverted to repay Mr Takahashi his US$6m. And then he would have a 49% interest in the profits. But first, to get the project off the ground, HK$60 million would be needed to acquire the rights and pay other expenses.

  43. Mr Cheng’s company Chinluck Group Ltd (“Chinluck”) had entered into an agreement on 15 October 2003 to buy the rights from a company called China Score Investments Ltd (“China Score”). China Score did not actually own the rights, but had entered into an agreement on 18 September to buy them from the subsidiary of a company called Telford Road Bridge Investments Company Ltd (“Telford”). Telford had been granted them on 26 August 2003 by the Wuhan Municipal Transport Committee, a committee of the local authority.

  44. It is important to notice that although the rights appear to have been passed somewhat rapidly from company to company, there was no evidence to suggest that each was not an independent entity. Telford appears to have been controlled by two mainland businessmen named Wong Chiu-Wah and Shum Kay-yee. China Score was controlled by one Song Jian-jun. And Chinluck was controlled by Mr Cheng. There was a suggestion in the cross-examination of Mr Takahashi that they were not at arms’ length but it was not pursued and the judge did not accept it. So we have to assume that they were separate persons, each with its own directors, shareholders and creditors.

  45. On 16 October 2003 Mr Takahashi and Mr Cheng met and agreed terms. Mr Takahashi would provide $50m to Chinluck to enable it to buy the rights from China Score. The payment would enable China Score in its turn to buy the rights from Telford. Mr Takahashi paid the $50m by 3 cashier orders. No doubt fearful about throwing good money after bad, he had them made payable to Telford, whom he knew was the actual holder of the rights. He gave them to Mr Cheng, who gave a receipt on behalf of Chinluck. Mr Cheng gave them to China Score, which gave China Score a receipt and gave them to Telford. Telford gave China Score a receipt and cashed them. On 1 December 2003 Telford and China Score entered into an agreement which stated that Telford had completed the formalities for the transfer of the rights to China Score and that Telford would withdraw from the project.

  46. Then the scheme began to unravel. It turned out that the local Transport Committee was entitled to the contract for the construction of the road. The bank loan could not be used to repay Mr Takahashi as Mr Cheng had suggested. The Mainland authorities said that Chinluck was not qualified to manage the project. The Party Secretary was called in. Eventually it was decided to unwind the transfers of rights. China Score agreed to transfer them back to Telford and return Chinluck its money. The rights were retransferred but there is a dispute over whether Telford repaid China Score and what, if anything, China Score repaid Chinluck. What is undisputed is that Mr Takahashi did not get any of his $50m back.

  47. Mr Takahashi sued Mr Cheng, Chinluck, China Score and Telford. China Score is insolvent. Mr Cheng and Chinluck settled the action by agreeing to pay $162m (which included the $50m and other payments) by instalments. But they defaulted after the first $1m. That left Telford. But the problem was that Mr Takahashi had no contractual relation with Telford. It had never heard of him when it received his cashier orders to pay for the rights it was transferring to China Score. But Mr Takahashi claimed that the consideration for which he provided the money which was received by Telford had completely failed. He had got nothing in return and Telford was therefore liable to make restitution. The claim succeeded before Fung J but was dismissed by the Court of Appeal.

  48. The law of restitution has its complexities and has been the subject of some strident doctrinal disputes, but this seems to me a plain case in which the Court of Appeal was obviously right. Although the money received by Telford was Mr Takahashi’s money in the sense that he had obtained the cashier orders payable to Telford, they were received by Telford (and were intended to be received by Telford) in discharge of an obligation of China Score. Telford owed Mr Takahashi no consideration for the payment. The consideration due from Telford was the transfer of the rights to China Score and that consideration was fully discharged. So there was no failure of consideration such as to create an obligation upon Telford to make restitution.

  49. In principle, if A agrees to discharge his obligation to make payment to B by providing B with the means of discharging B’s debt to C (or by discharging it directly), that is, for the purposes of the law of restitution, a payment from A to B. If I buy goods from you and give you a draft in favour of the bank where you have an overdrawn account, I will have enabled you to discharge part of your debt to the bank. If you do not deliver the goods, there is a failure of consideration and I can reclaim the money from you. But I cannot reclaim it from the bank.

  50. There is, as I have said, a dispute over whether Telford repaid the money it had received from China Score. The judge found that it had not but the Court of Appeal would have been willing to reverse this decision. But I agree with the Court of Appeal that it does not matter. Mr Takahashi’s claim against Telford cannot be affected by the state of accounts between Telford and China Score.

  51. For the reasons and those given by Mr Justice Ribeiro PJ, I would dismiss the appeal.


[1] Dated 28 August 2003.

[2] In a Feasibility Report dated 17 September 2003.

[3] On 6 October 2003.

[4] Although a claim for restitution on the basis of a mistake of fact was pleaded and was dealt with by the Judge , the plaintiffs’ case on the appeal was confined to a claim based on total failure of consideration.

[5] Appearing with Mr Stewart K M Wong and Mr George Hui for the plaintiffs.

[6] Appellants’ Case §62 (emphasis in the original).

[7] Section A.3 above.

[8] Section A.2 above.

[9] Section A.3 above.

[10] Section A.2 above.

[11] Section A.3 above.

[12] Section A.1 above.

[13] Section A.3 above.

[14] Court of Appeal at §17.

[15] Especially Aiken v. Short (1856) 1 H & N 210 and Kerrison v Glyn, Mills, Currie & Co(1911) 81 LJKB 465.


Representations

Benjamin Yu SC, Stewart K M Wong and George Hui (instructed by Messrs Chan and Cheng) for the appellants

Edward Chan SC, Andrew Mak and Eric Chow (instructed by Messrs C L Chow & Macksion Chan) for the respondent.


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