England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE LIGHTMAN)

		Royal Courts of Justice Strand London WC2A 2LL Wednesday 9 May 2002

1. LADY JUSTICE ARDEN: This is a renewed application by the defendants for permission to appeal against the order of Lightman J dated 2 November 2001 made following a trial lasting several weeks. In so far as this application is for permission to appeal against that order, it was out of time by two weeks and I would be content to extend time.
2. The judge gave another ruling on 29 June 2001 refusing an adjournment of the trial. It is necessary for me to summarise the basis on which that adjournment was refused, and I propose to do so before summarising the nature of these proceedings. In his judgment refusing an adjournment, the judge pointed out in that judgment that the case had been fixed for trial in October 2000 and the two applications for adjournment had already been heard and refused. He referred in particular to an earlier application which was refused by Neuberger J. He also referred to the grounds upon which the application for adjournment with which he was concerned had been made: that it was desired to file further evidence from a Mr Zhang Ning; that it was desired to consolidate the action with another action; that it was desired to obtain further evidence as to Chinese law; and that was desired to obtain further accountancy evidence. The last two matters were matters which Neuberger J had already considered.
3. The principal ground for the application appears to have been that the defendants, who were then in person, should have legal representation. The judge rejected this on the basis that the defendants had known throughout of the desirability of legal representation. He said that it was not a fair tactic on the first day of the trial to seek to apply for an adjournment with a letter from solicitors, who were prepared to act but required time to read the papers.
4. Other grounds were also put before the judge, including grounds as to lack of funding. In opposition to the adjournment the claimants stressed the importance of the trial going ahead for the convenience of witnesses. They also relied on the evidence of the joint receivers and managers of the principal company involved in these proceedings, Shanghai Links Executive Community Limited ("SLEC").
5. In relation to Mr Barry Hansen, the judge also said that in his various interventions during the hearing he had made it clear that he knew the facts of the case and was well capable of presenting the defendants' case. As regards the evidence of the joint receivers and managers, the judge said that the claimants took the view, based on that evidence, that delay would seriously prejudice them in respect of the future position of SLEC. He also recognised that the defendants disputed there was such jeopardy or possibility of damage if there was an adjournment. The judge held that there might be a serious risk and that in any event the claimants reasonably took the view that there was a very serious risk. The judge took other factors into account, but at the end of the day he took the view that he should refuse the adjournment.
6. One of the principal grounds on which the appellants rely in this application is that the judge should have granted that application for an adjournment. That is an application for permission to appeal out of time against the judge's ruling on 29 June 2001. The trial proceeded. There was a further ruling on 12 July 2001 rejecting an application to adduce late evidence of Mr Zhang Ning and that of Mrs Susan Chen. At the end of the trial the judge reserved judgment. In his judgment he held that the defendants were guilty of breaches of warranty and fraudulent misrepresentation by inducing the claimants to invest substantial sums in development projects in China.
7. The proceedings, the subject of the trial, arose out of the claimants' investment in a development project in Shanghai. The project consisted of the construction of a residential community and golf course on land to be purchased from a government entity, Huaxia. The development was to be undertaken by SLEC and another company, SLGCC, which were owned by the first three defendants. The claimants alleged that by the subscription agreement the defendants represented to them that prior to the date of the agreement SLEC had paid five out of the seven instalments due in respect of the purchase price for the land on which the development was to be carried out. The defendants' case was that they had merely represented that SLEC's liability to Huaxia had been discharged. The judge held that the defendants had represented that the five instalments had already been paid when they had not been paid. The judge held that SLEC's liability had not been discharged or novated to a third party and that the defendants fraudulently mis-stated the position to induce the claimants to invest in SLEC. He accordingly held that the defendants were liable for breach of warranty and misrepresentation of fraud. The trial was a trial on liability alone. Permission to appeal was sought on a number of grounds and the matter originally came before me on paper. I refused the application giving reasons extending to some three pages. I said:

"Ground 1 - Failure to prove damage.

No real prospect of success. The claims by Huaxia were not statute-barred either at the date of the subscription agreement or 2 November 2001 on the judge's findings and no basis is suggested for overturning the judge's relevant findings of fact.

Grounds 2 and 4 - Wrongful exclusion of the evidence of Zhang Ning

I have proceeded de bene esse on the basis that the defendants wish to appeal out of time against the order of Lightman J of 12 July 2001.

The statement of Zhang Ning was out of time and therefore the judge had a discretion as to whether or not to admit it. It would have to be shown that his decision was reviewable on the limited grounds on which the exercise of discretion can be set aside. The grounds of appeal simply assert that the exclusion of this evidence was 'wrongful' and thus disclose no real prospect of success. Among the reasons that the judge gave was that the evidence of Mr Zhang Ning was not of value in relation to the evidence of Mr Bao. In addition it is not clear why the evidence in the second witness statement was not obtained in due time.

Ground 3 - Estoppel preventing a claim by Huaxia.

No real prospect of success. The evidence of Professor Dicks cited in the skeleton argument does not on the face of it support the argument that the judge was wrong to conclude that there is no doctrine of estoppel in Chinese law because Professor Dicks states that the court would investigate the merits of Huaxia's claim. It follows from the judge's finding that there is no doctrine of estoppel in Chinese law that there was no reason why Huaxia should not bring a claim based on the unpaid instalments against SLEC. The fact that the Investors relied on the presentation of SLEC's financial position in its accounts when entering into the Subscription Agreement could not affect Huaxia's rights as against SLEC; nor is it suggested that the Investors would themselves have a claim against Huaxia.

Ground 5 - Failure to have proper regard for the Defendants' case.

The judge could not take into account the evidence of Mr Zhang Ning because it had been excluded. A ground of appeal that the judge failed to take into account that the Hansens were in person can only support an appeal to the extent that it is particularised.

I have treated Paragraphs 5.5 and 5.6 as an independent ground of appeal but concluded that since it is not substantiated (ie cross-referred to the judgment and accompanied by grounds, supported by evidence at trial, for arguing that the judge's findings were wrong) this ground affords no prospect of success.

Ground 6 - Refusal of adjournment.

I have proceeded de bene esse on the basis that the appellants wish to apply to appeal out of time against the Order of Lightman J of 29 June 2001. The appellants' real point is the complexity of the case merited legal representation. While the judge had not pre-read the case in detail it is clear from his judgment of 29 June 2001 that by the time that he had to decide the adjournment issue he was familiar with some of its complexity. Nonetheless he ruled against an adjournment. He took into account an earlier ruling of Neuberger J in January 2001 that the absence of legal representation was not a basis for an adjournment in this case. He also considered that funds must have been available to the appellants at an earlier stage to obtain such representation. He took into account his assessment of the ability of Mr Barry Hansen. He refers to the human rights implications. In all the circumstances I do not consider that the appellants have demonstrated that there is a real chance of success on appeal of showing that the judge was wrong in the exercise of his discretion on this point or that his decision violated the Convention rights of the defendants. I have also read paras 57 and 63 of the judgment of 2 November 2001, and they provide no support for the proposed ground of appeal.

Ground 7 - Corroborative errors and inaccuracies of the judgment.

I have read these but it is not suggested that the impact of the alleged inaccuracies is such as to afford an independent ground of appeal against the order dated 2 November 2001 and accordingly by themselves they do not afford any prospect of success.

Having given those reasons I gave certain directions as follows:

1. If the appellants renew their application, any additional skeleton argument must be served on the respondents not less than seven days before the date fixed for the hearing so as to give the respondents an opportunity to make a written submission in reply.

2. I have not extended time for permission and if the appellants renew their application they will need to satisfy the court that time for the application should be extended.

3. I make no direction at this stage for the respondent to be given notice of any renewed application with a view to inviting them to be present at that hearing. My present view is that written submissions from the respondent should suffice. If a renewed application is made then in the absence of further directions the respondent will require permission to make oral representations to the court and will be at risk as to the costs."

8. I made those directions bearing in mind, among other things, the fact that there had already been written submissions lodged by the proposed respondents to the appeal. The renewed application was fixed for yesterday. The appellants' further skeleton argument for this application was available at 10am on Thursday 2 May 2002. The appellants sent the skeleton argument to the respondents that day, but did not tell them about the date for the renewed application. I heard the application and stood the matter over until today. I gave leave for further draft grounds of appeal to be formulated and filed by 5pm yesterday, which they were. These were also sent to the respondents but, understandably, the respondents have not been able to supply any comments by today. I stated yesterday in court that if, on reflection, I thought that they should be given time to file certain submissions, I would so direct in the course of this judgment today.
9. On the renewed application Mr Isaac Jacob, for the appellants, makes further submissions on grounds 6, 3 and 7. He seeks to adduce two grounds. I start with ground 6, the failure to adjourn. Mr Jacob made further submissions in support of his ground challenging the judge's refusal to adjourn the case on 29 June 2001. I have already summarised the judge's judgment of that date. Mr Jacob submits that the case could have gone to October 2001 and that the concern which had been expressed by Neuberger J, on which concern Lightman J relied, was about an adjournment to March 2002. The case lasted until October 2001 against the prediction of counsel for the claimants.
10. Mr Jacob further submits that the judge placed reliance on the evidence of the joint receivers and managers of SLEC, but did not know that they had a conflict of interest. The appellants seek to adduce new evidence, not available at the time of trial, to show that it is intended to appoint the joint receivers and managers as directors of SLEC after the receivership has ended. However, this evidence is disputed by the receivers: in particular they say that they did not know about this proposal until very recently. Accordingly it is evidence which is disputed and would not, in my judgment, be admissible on any appeal. This evidence of the joint receivers and managers was only one factor on which the judge relied. Furthermore, the fact that they had this conflict of interest does not mean their judgment can necessarily be impugned.
11. Mr Jacob further submits that the judge was wrong to say that Mr Hansen was not able to pay the costs thrown away by the adjournment. He submits that funds were being offered as security for the claimants' costs, namely the security of family jewellery (pledged by Mr Barry Hansen's parents and valued by them at £300,000) and the payment of fees by the golf club. It is clear that these sources of finance were neither equivalent to cash nor certain in amount. The costs of the adjournment were also likely to be very considerable as witnesses had come from China to give evidence and counsel had been briefed for the trial. Accordingly I do not consider that there is a real prospect of success on appeal in showing that the judge misdirected himself on this issue.
12. Mr Jacob further submits that the effect of refusal to grant an adjournment in the absence of legal representation of the defendants was that the defendants were disadvantaged and could not be compensated by an indulgence on the part of judge. He cites a number of examples and has taken me to places in the transcript where it is apparent that inept questions were being asked by Mr Hansen. It is not possible for the court to form any overall view by this sort of exercise. The Court of Appeal must be guided, in the first instance, by the judge's judgment. The judge dealt in paragraphs 57 - 63 with the question of lack of representation. I refer to one passage at paragraph 59 of the judgment where he said:

"The lack of legal representation has in my view afforded very limited (if any) disadvantage to them and any such disadvantage has more than been compensated for by the indulgences which they have secured as litigants in person. They know the facts of their case and the plethora of documents better than anyone. They are highly sophisticated businessmen. They have had the assistance of the lawyers to whom I have referred. Their conduct of the trial disclosed that they had a thorough knowledge of the relevant substantive and procedural law. Neuberger J, who heard a number of interlocutory applications by the Defendants, noted on one occasion:

'It seems to me that the Hansens, having seen Barry Hansen present their case on more than one occasion and give evidence, are not ignorant by a long way. Mr Barry Hansen strikes me as an intelligent man with an appreciation of legal niceties of procedural and substantive law greater than some members of the Bar who have appeared in front of me.'

and later in the same judgment he commented:

'Mr Hansen understands the legal system of this country better than 99 per cent of litigants in person I have come across... He has shown himself capable of locating and reading and understanding passages in the White Book and other legal books'.

I entirely agree. Both Mr Stuart Hansen and Mr Barry Hansen showed themselves resourceful and highly articulate and conducted the defence with ability and vigour."

13. I have looked at the passages in the transcript to which Mr Jacob has taken me, but I do not think there is any prospect of displacing the considered judgment of the judge on this issue, which it was partly based on that of another judge of the High Court.
14. Mr Jacob additionally relies on the judge's refusal to allow the defendants to rely on the affidavit evidence of Mr Apollo Xu. This was contained in affidavits sworn in other proceedings. Mr Xu was called as a witness but the defendants failed to ask him to verify the affidavits. Mr Jacob submits that the affidavits contain vital evidence about Mr Bao, to which I shall refer. I have no doubt that the evidence of Mr Bao is extremely important but Mr Jacob very properly does not say that the judge's decision on this point was not a decision which he should have taken. Accordingly, the evidence was properly excluded and could not be taken into account at the trial.
15. The question of whether the judge was right to refuse to adjourn the case was something which has to be assessed, not in the light of the subsequent events in the course of the trial, but as the matter appeared at the time of the application for an adjournment. At that stage it would be impossible to foresee the position which subsequently arose in relation to Mr Xu.
16. Mr Jacob also refers to the fact that the defendants relied on the evidence of a Chinese accountancy firm recording that the five instalments had been paid without calling the makers of the report upon which they relied. In his judgment the judge remarks that the reports had no evidential value in view of the absence of the maker of the reports (see judgment, paragraph 189(b)). In that event he found that a number of documents signed by Mr Bao, recording payment of he five instalments were a sham. It is difficult to see that there would have been a very different result the makers of the report had been called as they, no doubt, would also have relied on the sham documents. Again the judge was not able to foresee these matters when making the decision as to whether to adjourn.
17. Mr Jacob also relies on the finding of fraud in relation to one version of the agreement dated 22 July 1997. He does not seek to adduce any further evidence showing that the finding of fraud was incorrect and does not contend that the judge's finding of fraud was wrong. It seems to me that this point similarly does not carry any weight as a ground for challenging the judge's decision not to adjourn the trial on 29 June 2001.
18. I have gone through Mr Jacob's points in some detail, but at the end of the day, in my judgment, it is too late for the defendants to seek to appeal the judge's refusal to order an adjournment on 29 June 2001. There was no appeal within the time prescribed by the Civil Procedure Rules. The defendants knew about the possibility of an appeal since this was mentioned in the course of discussion after judgment. There is no evidence from them explaining why they did not take the obvious step of appealing at that time. It is obvious that they would have been very busy with the trial within the course of the next few days, but that is not really an answer as the points must have been at their finger tips. In my judgment it is too late for them to come along now, long after the trial has taken place and gone against them. There is no prospect of persuading the Court of Appeal that the refusal of an adjournment is reviewable on appeal. Accordingly I refuse an extension of time to appeal against the judgment on 29 June and dismiss the application for permission to appeal on the adjournment issue.
19. I now turn to ground 3. The appellants seek to challenge the judge's finding that, as a matter of Chinese law, the agreement for novation would have been invalid because of the absence of notarisation and therefore ineffective under Chinese law to operate as a novation. Mr Jacob criticises the expert testimony accepted by the judge. But his real point is that Huaxia did not think that the agreement was invalid which would undermine the judge's finding of dishonesty on the part of the defendants. The difficulty for Mr Jacob is that the judge's finding of fraud is supported by other material and thus there is no real prospect of success on this ground unless the finding of fraud can be challenged. That is now sought to be challenged by the first new ground to which I will turn shortly. Subject to that ground, it seems to me that there is no real prospect of success on this ground of appeal for the reasons which I have given.
20. Before moving to the new ground, I will deal with ground 7 on which Mr Jacob has also relied in his oral submissions and in his further skeleton argument. He has listed in his first skeleton argument a number of further inaccuracies. He submits that the cumulative effect of the errors and inaccuracies in the judgment cast doubt. I do not consider this can be an independent ground of appeal as I said in the written reasons which I gave. It simply seeks to corroborate other grounds by reference to the inaccuracies, and I need to refer to them no further.
21. I now move to the first new ground of appeal. This is formulated by Mr Jacob following the renewed application yesterday when it became apparent that the primary case put forward for leave to appeal was that there was a part payment of $20 million to Huaxia and an arrangement for novation of the payments due in respect of the purchase price of the land and therefore the defendants could not properly have been found to have been dishonest. The new ground as formulated reads as follows:

"The judge was wrong to find that the receipts for payment of the land transfer fees were given to and accepted by Huaxia as part of a 'charade'. This was a gloss placed upon the evidence of Mr Bao in his first statement which evidence was not very different from the stated position of the defendants. The judge ought to have found that the liability of SLEC was satisfied by SLGCC taking on the liability that SLGCC had paid at least $20m of that liability by means of 200 membership certificates with a market value of $100,000 each. The judge made no finding about this matter at all."

22. I first deal with what the judge said about Mr Bao of Huaxia. Paragraph 78:

"It is necessary to consider with care Mr Bao and his evidence. Mr Bao has held the post of General Manager of Huaxia since its establishment on the 18th May 1992 and has been in charge of its daily operation and management. Mr Bao occupied a central role in the matters under examination in this litigation. He represented Huaxia in all the critical dealings with the Defendants. In respect of these dealings, beyond by providing his evidence, he assisted the Claimants by providing the critical contemporaneous documentation which the Defendants did not disclose or would not otherwise have disclosed and accordingly documentation which would otherwise not have seen the light of day. His evidence took the form of two Civil Evidence Act statements. Mr Bao's evidence and the documentation he produced entirely contradicted the Defendants' case and for this reason Mr Bao and his evidence were the subject of continuous attack by the Defendants. In these circumstances it was most unfortunate that the authorities would not allow him to leave China to attend the trial and give oral evidence and be cross-examined. The authorities took this decision because the Defendants have made allegations of criminal wrongdoing against him in China which have led to an investigation which is yet to be concluded.

79. Since his evidence cannot be tested and serious questions have been raised as to his integrity, I must regard Mr Bao's evidence with caution. I must have regard (amongst other matters) to the considerations spelt out in section 4 of the Civil Evidence Act 1995, any motives he might have for lying, the contemporary and other evidence, the probability or otherwise that he is telling the truth and the characters and predispositions of his detractors. There are certainly two respects in which is evidence is unreliable. For whatever reason he does not accept that the June 1995 Loan Arrangement was made for the purpose of obtaining the Certificates and is clearly wrong when he says that Certificates were not issued until March 1997 and were backdated. But his evidence as a whole is supported by the contemporary documents and other evidence and accords with probabilities of what happened. In particular and what is of particular importance it is plain that time and again Mr Bao was prevailed upon by Mr Barry Hansen to allow payment of the five instalments to be deferred and documents to be executed which falsely stated that the instalments had ben paid, but which it was agreed should in nowise affect the legal liability of SLEC. It is also plain that as part of these arrangements (and confirmatory of them) it is was agreed that Huaxia should keep the Certificates until SLEC paid the transfer price in full. When SLEC needed to use the Certificates, Huaxia would allow SLEC to borrow them on a temporary basis. SLEC would give a receipt for and undertake within a fixed short period to return them. The last time SLEC borrowed the Certificates was on the 31st March 1999. Mr Barry Hansen signed an undertaking to return them on the 30th April 1999, but he failed to return them. As will appear, I do not accept his evidence on every issue, but generally it does appear to me to be credible and supported by other credible evidence and should be accepted. I should make it clear that there is not a trace of evidence to support the Hansens' allegation that one or other of the Claimants has bribed Mr Bao to give favourable evidence. The charge is merely an unprincipled attempt to discredit his evidence."

23. The judge thus gave very careful consideration as to the extent to which Mr Bao's evidence should be accepted.
24. I then turn to the narrative and the judge's findings. This was set out in paragraphs 104 to 125. I need only summarise what happened. In 1995 a company called SHTI borrowed money from the SPD Bank, guaranteed by Huaxia. It was deposited in Huaxia's bank for a short period and paid back to SHTI ("the 1995 arrangement"). It is quite clear that although the intention was to make it look as if money had been paid to Huaxia, it was not paid. The judge said at paragraph 107:

"It is plain that the 1995 Arrangements were not intended to affect the liability of SLEC to Huaxia to pay the purchase price for the Land, but were a sham. They were a charade designed to create a false impression that the first instalments of the purchase price under the Contracts had been paid and thereby to mislead the Chinese authorities into issuing the Certificates and GE as prospective investors. This is apparent from the terms of the arrangement itself, the contemporary and subsequent correspondence and documentation and the conduct of the parties as well as the evidence of Mr Bao. It is sufficient in this regard at this stage to refer to three matters:

(a) on the 5th September 1995, Marcus Fishenden, the legal representative of SLEC and SPNA at the time, wrote on behalf of Mr Barry Hansen to Mr Bao concerning the repayment of the US$2 million loan. He stated that the loan had been required in order to ensure the issue of the Certificates. This purpose had been achieved. The loan did not require renewing, and that Huaxia should repay the loan. On the same day, Huaxia acknowledged that letter, agreed to repay the Bank loan (which it did) and requested payment of the first instalment in relation to the Contracts of US$2 million, which it stated had been promised in August. (There is later correspondence to like effect to which I must subsequently refer).

(b) Mr Bao in his evidence stated that at this time as part of the arrangements between the parties and to protect Huaxia, it was agreed that Huaxia should retain the Certificates until the full prices had been paid, and that Huaxia should lend the Certificates to SLEC as and when it needed them on undertakings to return them and signing receipts to this effect. Mr Barry Hansen initially denied the existence of any such arrangement, but when faced with such a receipt for the Certificates containing the undertaking to return them on the 30th April signed by him, he had no other adequate answer or explanation and accepted the existence of the arrangement. His evidence and the receipt itself confirms (and I accept) Mr Bao's account on this issue;

(c) in the course of his cross-examination Mr Barry Hansen stated the purpose behind the arrangement was satisfaction of a regulatory requirement on Huaxia as vendor."

25. The judge went on to hold in paragraph 109 as follows:

"The defendants maintain that the 1995 Arrangements and the later circular payment transactions constituted a series of transactions which in some way transferred liability to pay the purchase price under the Contracts from SLEC to SLGCC or SHTI and accordingly operated to release SLEC from its payment obligations under the Contracts. The short answer is that there is no credible evidence of any such intended transfer or novation; and there is no documentation affording any support for this case; and indeed the subsequent correspondence is totally inconsistent with any such release. It is plain that Mr Bao (as the Defendants knew) was totally set against any such arrangement; and the contemporary documentation manifests beyond question that the parties agreed that the sums due under the Contracts remained due and owing from SLEC to Huaxia up to and past the Closing Date."

26. Paragraph 115 states:

"On 6 March 1996 Huaxia wrote again to Barry Hansen seeking a meeting with him to ensure 'implementation' of the Contracts ie payment of the instalments due. On the 9th July 1996, Mr Bao wrote again to Mr Barry Hansen at Sealand noting that Huaxia had assisted in getting the Certificates to allow the Project to commence on the 22nd December 1995. Mr Bao commented that promises by Mr Barry Hansen to make payment of the instalments due in March and May 1996 had not been honoured. Huaxia indicated a willingness to accept by way of instalment payments but wanted US$1 million for its urgent financial needs. Mr Barry Hansen and Mr Stuart Hansen told me that they could not recall receiving this letter. I am amply satisfied that Mr Barry Hansen did receive it and both remembered it perfectly well. The letter, like so many others (and Mr Barry Hansen's failure to challenge its contents) gave the lie to their story that the liability of SLEC to pay had been fulfilled or satisfied."

27. There is a reference to one of the contemporaneous documents to which the judge was referring as confirming Mr Bao's evidence. In the narrative of events there is an intermediate securitisation transaction which did not proceed and with which I need not deal.
28. It was thereafter decided by the defendants to seek equity finance for the project. At paragraph 117 the judge said:

"In mid September 1996 Mr Barry Hansen was approached by Goldman Sachs who indicated an interest in making an investment in the Projects. Mr Barry Hansen informed Mr Roeloffs of the approach, but Mr Barry Hansen retained in his own hands the handling of relations with Goldman Sachs. He was in urgent need of funds, but to get them from Goldman Sachs felt the impelling need to cover up the fact that no instalment of the purchase price had yet been paid. In this context Mr Barry Hansen wrote to Huaxia a very significant letter dated the 5th November 1996 ('the November 1996 Letter'). The Defendants concealed this letter from their advisers and the Investors: its disclosure would have been dynamite. If it had been disclosed, BT would have resigned as advisers and it is inconceivable that any reputable investor would have dealt with the Defendants. Likewise the Defendants concealed the letter in these proceedings until the Claimants obtained a copy from the Receivers (who in turn obtained that copy from Huaxia) and made an application for an order for disclosure supported by an affidavit dated the 14th February 2000 referring to the letter. The letter reveals the dilemma which the Hansens were in and the deceit they were prepared to practise on both Huaxia and Goldman Sachs to escape and achieve what they wanted. The Claimants fairly refer to the letter as 'the Smoking Gun'. Mr Stuart Hansen told me that he first saw the letter in July 2000. I do not accept this evidence. The two brothers were very close and I do not think that Mr Barry Hansen would have kept this from him. The November 1996 Letter read as follows...."

29. I simply read the concluding part of this document:

"In any event the last significant piece of due diligence that remains outstanding is the delivery of Payment Verification Certificates and Payment Receipts, which ties into the December 31, 1995 Audited Settlement and the September 30th 1996 Audited Statement that Coopers and Lybrand have prepared in Draft form on the assumption that we could satisfy them about Land Payments and the flow of funds. This will need to [be] supported by a credible story to explain how and where the funds flowed from. One idea is to use the Pudong Development Bank, who, because of your kind assistance when we were trying to complete the transaction with GE Cap[ital flowed funds that were ultimately paid back to the Pudong Development Bank, a Receipt from Huaxia, a Verification Certificate, and an Acknowledgement by the Pudong Development Bank that the funds are no longer owed, as opposed to saying that they have been re-paid, which would be incorrect. This is our suggestion about how to overcome this, hopefully, final hurdle. These are my thoughts alone and I am not sure whether they are reasonable. I look forward to your thoughts and suggestions on this matter. As you know, there should have been the following land payments to date...."

30. He then sets at the instalments due in February 1995, June 1995 and December 1995. He then continues:

"The above will be required to be included in the December 1995 Audited Financial Statements."

31. He refers to the June 1996 instalment and continues:

"These June payments will be required to be acknowledged for September 30 1996, Audited 9 month Interim Statement."

32. And he refers to three further payments.

"It is likely that the bank will want an agreement that these last 6 payments are waived until their Bank Loan and/or their equity investment is paid out. Perhaps, the best way to handle this is to transfer these obligations over to Shanghai Links Golf and Country Club only. Goldman Sachs will also want a statement that no claim will ever be made against the land or the companys for these payments.

As far as the land payments that should have been previously made, the problem is simply to satisfy Coopers and Lybrand and the foreign lawyers. Naturally, there would be an agreement clearly stating that the funds shown as advanced under the above procedure would need to be repaid, which has the same effect as saying that funds remain outstanding."

33. In paragraph 118 the judge states:

"....As regards the deceit on Goldman Sachs, there are two elements. First the letter makes plain that no payment of any certificates and payments receipts now relied on by the Defendants had yet come into existence. Second, the letter suggests a similar charade to the 1995 arrangement. The parties should create a 'credible story' indicating the flow of funds in payment for the Land Use Rights in order to show to lawyers and accountants notwithstanding the reality was that the payments had not been made. Mr Barry Hansen gave the absurd explanation in his evidence why he spoke of the need for a credible story that he feared that Huaxia in its 'loans' to SLEC might be using 'black market money' (something to which the brothers themselves according to their evidence had recourse). They only 'loans' were the circular payments. How these could involve black market money was never explained. The proposed scheme included a loan agreement with the Bank, a receipt from Huaxia, a verification certificate and an acknowledgement by the Bank that the funds were no longer owed, and the transfer of liability for the last three instalments to SLGCC."

34. Paragraph 119:

"Mr Bao agreed to the request to take part in this charade supporting the 'credible story' that the instalments to date had been paid, and this charade was then played out. At the request of the Defendants Huaxia signed back-dated receipts for payment and certificates of payment of the first four instalments of the purchase price (due on 17th February, 15th June, 15th December 1995 and 15th June 1996); and at the same time and in exchange for them by four confirmatory letters (dated in the Chinese versions) and sent on the 7th November 1996 to Huaxia, Mr Barry Hansen acknowledged on behalf of SLEC that the four instalments remained outstanding and would be paid 'through alternate consideration which is accepted to the Vendor acting in the best interests of the project'. These letters were written to reassure Huaxia that, whatever representations were made to Goldman Sachs, the true position that no instalment had been paid would remain the position as between Huaxia and SLEC.

120. Goldman Sachs' approach did not proceed because BT advised that (instead of US$35 million from Goldman Sachs) US$50 million was available from the Claimants. The documents signed by Huaxia (together with a further receipt dated the 15th December 1996 in respect of the fifth instalment) were however available to be used and were used by the Defendants to persuade the Claimants that the Five Instalments had indeed been paid, but the letters signed by Mr Barry Hansen were concealed from the Chinese Auditors, Coopers & Lybrand, Freshfields and the Investors. I shall refer to the five receipts as 'the Receipts' and the four confirmatory letters (together with the later confirmatory letters dated the 18th February 1997) as the 'Confirmatory Letters'.

121. There has been put before this Court (and the TCI Court) a body of conflicting evidence as to the meaning of the phrase in the letters signed by Mr Barry Hansen 'alternate consideration'. Mr Stuart Hansen variously stated to me in cross-examination that the alternative consideration referred to building houses for Huaxia on a neighbouring site and to various other forms of offset. In his sixth affidavit in the TCI proceedings Mr Barry Hansen stated that the alternate consideration was provided in the form of promissory notes given by DOHL. His later evidence was to the effect that these notes were merely comfort letters. It is sufficient to say that Huaxia never accepted any promissory notes or any alternative consideration in respect of the Five Instalments, least of all any date prior to the Closing Date."

35. It is submitted that Huaxia had accepted, in lieu of $20m due to them in respect of the land certificates, 200 memberships of the golf club which was to be operated by SLGCC. Reference is made to a number of points in Mr Bao's witness statement, for example Mr Bao stated at paragraph 25 of his witness statement that Mr Barry Hansen had promised that all payments covered by the receipts would be paid by alternate consideration as was legally permissible and acceptable to Huaxia. It is submitted that letters written on the same date as the payment receipts were consistent with the agreement that payment should be by way of consideration. Reliance is also placed on the fact that Mr Bao did not admit he was complicit in the fraud and charade and on the fact that the three party assumption agreement of 31 March 1997 conformed with such an agreement because, on its face, it provided for the novation of liability from SLEC to SLGCC. Further reliance is placed on Mr Bao's statement stated that after Barry Hansen and Huaxia started discussions on the proposals contemplated in a Concept Paper of 12 May 1999, Mr Barry Hansen proposed many times that Huaxia would be provided with 200 golf club memberships as SLEC's partial satisfaction of its payment obligations towards Huaxia. Moreover, in the evidence excluded by the judge, Mr Apollo Xu stated that it had been agreed in May 1999 that Huaxia would receive additional golf club memberships. It is contended that the Concept Papers and a response from Huaxia on May 13 are consistent with such an agreement and liability being that of Sealand, not SLEC.
36. Mr Jacob also seeks to rely on the evidence of Susan Chen which was excluded and which forms the basis of a proposed new ground of appeal. The value of the evidence, submits Mr Jacob, is that it shows that Mrs Chen had the responsibility for administering all SLGCC memberships, that Huaxia received and sold some 80 golf club memberships in 1994 and 100 silver class memberships in 1999. He submits that the evidence of Mr Bao to the effect that Huaxia received only 20 memberships at that date was false. That, however, is not evidence which was before the judge because he had excluded it and I will need to deal with that matter.
37. Mr Jacob submits that the judge was wrong to accept parts of Mr Bao's evidence which conflicted with that of Mr Barry Hansen or other witnesses. Mr Jacob submits that Mr Bao had given evidence about the obtaining of land certificates on behalf of SLEC which were said to be backdated to 29 June 1985. Such evidence was clearly false, according to Mr Jacob, which threw doubt and should be taken into account as to the rest of his statements.
38. It is clear from the further submissions that have been lodged that much emphasis is placed on the Concept Paper of May 1999. That is quoted in the further submissions that were lodged for the renewed application. The Concept Paper of 12 May 1999 states:

"Principle. Agree on an amount that Party A still owes Party B as part of the purchase of the lands by Party A from Party B. Further, to pay out this amount to Party B as part of the re-capitalisation of Party A.

Amount suggested by Party A is USD 11 million. The amount tentatively countered by Party B is Rmb 100,000,000 (USD 12 million). The amount is split into 2 separate obligations...."

39. Mr Bao is said to have written on 13 May 1999 as follows:

"Response regarding Concept Paper dated May 12

Your fax of Concept Paper dated May 12 regarding the rights and benefit between Sealand Housing Corporation and Huaxia Corporation in the transaction of Links and GS Corporation has been received. We agree with the methods stated in the paper in principle. However, the following should be clarified in the agreement or the operation.

In the operation the twelve million USD must be ascertained before we sign any formal agreement and the fund should be paid to us before the agreement becomes effective. Otherwise, the agreement about the transaction shall not be effective."

40. The particular matter on which Mr Jacob relies is that the amount outstanding to Huaxia was $32/33 million. He submits that the letter dated 13 May 1999, which refers to the US$12 million, indicates that USD$20 million dollars had already been dealt with between the parties, and that this supports the case being made that $20 million dollars was to be discharged by the grant of 200 memberships at $100,000 a piece leaving USD$12 million. However, Mr Jacob has failed to deal with the point that the whole transaction, if it was a transaction, was conditional on the payment of USD$12 million cash and has failed to point to any direct evidence or witness statement or oral testimony that this sum was ever paid. He relies on an undertaking in writing dated 4 April 2002 executed by Mr Bao on behalf of Huaxia in favour of Shanghai Xingye Housing Company Limited ("Xingye"), which is said to support the contention being put forward in his new ground of appeal. This document was not in evidence before the judge but which will be sought to be adduced in evidence and which represents an agreement by Huaxia to issue golf club memberships. What is to happen is not entirely clear, but it would appear that Xingye is to pay $4.1 million to Huaxia, and Huaxia has given certain undertakings in the form of undertakings placed before me regarding its present interest over the land use rights in question in this action. It states that:

"Huaxia shall keep and own 200 golf memberships of Shanghai Links with each having a face value of $100,000. Huaxia shall have the absolute right to sell 200 memberships for cash. Of the 200 memberships, Huaxia shall negotiate with Xingye or its assigns for transfer of 100 memberships to Xingye or its assigns at a price to be determined by the parties at the earliest possible date."

41. It is however clear from the document in that undertaking that Huaxia still claims to be entitled to the land use rights in the land at the present time.
42. I have set out those matters in some detail. As I see the position, it is clear that the appellants are seeking to reopen questions of fact. This is very difficult to do on an appeal, especially where the judge has heard witnesses, and it is very difficult for an appeal court to recapture all the matters which a judge would have imbibed as a result of hearing oral evidence and hearing the case over a very extended period of time. Such matters may not all be reflected in the judgment. An appellate court will not therefore interfere unless it is shown that the judge was plainly wrong in his finding.
43. It is clear in this case that the judge relied on contemporaneous documents as well as the statements made by Mr Bao. He also relied on documents which had been signed by Mr Hansen and indeed documents which Mr Hansen had concealed from disclosure and from the parties to the transaction. As I have explained, the Concept Paper, Letter, on its face, coupled with the later letter, shows that there was no binding agreement to accept an alternate consideration. The fact that Huaxia had 200 golf memberships in April 2002 does not mean that it had accepted the arrangement back in May 1999. There was clearly a considerable gap to be filled in.
44. The appellants have not explained why the judge was wrong to rely on the contemporaneous documents to which I have referred in the passages which I have quoted at length from his judgment. Having had this case under consideration for a considerable period of time, it is clear that the judge relied on documents placed before him, that he took the view that there had been fraud practised by means of the circular payments transactions and the use of the certificates. No explanation has been tendered to suggest that he was wrong in any of those conclusions. Instead it has been suggested that the court should take into account on this appeal a number of facts which raise as many questions as they answer. Having given the matter consideration on the material presented to this court, I conclude that there is no real prospect of success on appeal on this new ground.
45. I then turn to the evidence of Mrs Chen which was excluded. It was proposed there should be a new ground dealing with this evidence. The judge refused to accede to its admission at trial because the directions of the court had not been complied with and because it failed to deal with other matters on which Mrs Chen's evidence would have been useful. It is simply said in the ground of appeal that the judge was wrong to decide that it would not be fair to admit it and that it would not assist the court for it to be adduced. However, this was a matter for the judge's discretion and it would have to be shown that the judge was plainly wrong. I have not been given any explanation for the late production of this evidence. In my judgment, in the light of the other conclusions that I have reached, there would be no real chance of success on appeal in respect of this matter. Accordingly, I refuse an extension of time against the order of 12 July for this purpose and reject that application. For the reasons given in this judgment, I refuse permission to appeal.
46. However, I am conscious that the judge made some very serious findings against the defendants and expressed his judgment in very clear and outspoken terms. I do recognise the importance of the matters to the defendants. If the applicants so wish, I will direct that the order should lie in the office for seven days in the event that the applicants can consider whether to put in further submissions filling in the gaps in their application to which I have drawn attention.
Order: Permission to appeal refused. Order to lie in the office for 7 days.