STANDARD CHARTER SECURITIES LTD v. ARTHUR LAI AND OTHERS

1993, No.A2757

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_____________

__________________

J U D G M E N T

__________________

Introductory

1. In early 1990, Bond Holdings Ltd, ("Bond Holdings") was experiencing financial difficulties. Amongst its assets were 881,515,404 (65.9%) of the 1,337,869,304 issued shares of Bond International Ltd, ("Bond International"), a company listed on the Hong Kong Stock Exchange. Bond Holdings had pledged them to Hong Kong and Shanghai Bank, ("H.K.S.B."), to secure advances to itself.

2. Tomson Pacific Ltd, ("Tomson Pacific"), another company traded on the Hong Kong Stock Exchange, wished to gain control of Bond International which was not itself experiencing financial difficulties and owned valuable assets including land near Rome.

3. Tomson Pacific was not a large company by Hong Kong standards, its total assets at the time it planned to gain control of Bond International being in the region of HK$870 million.

4. The stockbroker advising Tomson Pacific during its negotiations with Bond Holdings was ChinTung Ltd, ("ChinTung Securities"), the Plaintiff, and the advising merchant bank was Standard Chartered Asia Ltd ("SCA"). SCA was a wholly-owned subsidiary of Standard Chartered Bank Ltd. ("SCB").

5. ChinTung Securities was a wholly owned subsidiary of ChinTung Holdings Ltd ("ChinTung Holdings"), whilst ChinTung Holdings was owned as to 90% by SCA and the remaining 10% by Mr Arthur Lai, the 1st Defendant in the present proceedings.

6. Mr Arthur Lai was the Chairman of the board of directors of both ChinTung Holdings and ChinTung Securities.

7. Prior to any question arising on the part of Tomson Pacific that it might possibly consider seeking control of Bond International, Tomson Pacific was already an established customer of both ChinTung Securities and S.C.A. Likewise, associated companies of Tomson Pacific such as Tomson Securities Ltd ("Tomson Securities"), and Rivera Holdings Ltd ("Rivera") were already customers of ChinTung Securities.

8. Pursuant to Heads of Agreement reached on 4th May 1990, Tomson Pacific and Bond Holdings, together with other interested parties to whom, insofar as necessary, reference will in due course be made, entered into a series of interrelated agreements, all dated 16th May 1990, to the effect that Tomson Pacific would acquire 461,564,910 of Bond Holdings' 881,515,404 shares in Bond International at the price of HK$2.25 each, making a total consideration of HK$1,038,521,047, and that the remaining 419,950,494 million Bond International shares owned by Bond Holdings should be placed by ChinTung Securities with persons independent of both Tomson Pacific and Bond Holdings at the price of $2.25 each.

9. 461,564,910 shares in Bond International represented 34.5% of its issued capital of 1,337,869,304 shares.

10. By virtue of Rule 33 of Hong Kong's Takeovers and Mergers Code, any party acquiring, by itself or through related parties, 35% or more of the issued capital of a listed company has to make a general offer to all other holders of the company's stock to buy at the highest price paid by that acquiring party in the preceding six months. The practical implications of that for Tomson Pacific were that if its purchases of Bond International shares by itself or related parties equalled or exceeded that 35%, it would become liable to purchase at the price of at least $2.25 per share the 34% or thereabouts of Bond International shares not owned by Bond Holdings, the arithmetical result from that being a potential liability of approximately $1,023 million.

11. Were Tomson Pacific to become the owner of a mere 6,665,881 Bond International shares additional to the 461,564,910 it had agreed to purchase from Bond Holdings, the general offer mechanism of Rule 33 would be triggered.

12. To finance its purchase of the 461,564,910 Bond International shares owned by Bond Holdings, Tomson Pacific made a rights issue, managed by SCA, which raised HK$1,000 million. The prospectus for that rights issue was made public on 29th May 1990.

13. ChinTung Securities under one of the agreements made on 16th May 1990 accepted the role of agent to place the remaining 419,950,494 Bond International shares with placees independent of both Bond Holdings and Tomson Pacific.

14. If 6,665,881 or more of those 419,950,494 Bond International shares remained unplaced by a specified date, (25th July 1990), there would be significant financial implications arising by virtue of the various agreements made on 16th May 1990 for (i) Tomson which had agreed to underwrite the placing and any general offer under Rule 33, and (ii) Mr David Tong and Dr Stanley Ho, the principal shareholders of Tomson Pacific, who personally had agreed to sub-underwrite Tomson Pacific's obligation. The potential obligation of the underwriter and sub-underwriters was of the order of HK$1,000 million upwards.

15. An active participant in the negotiations which culminated in the agreements of 16th May 1990 was the Stock and Futures Commission ("SFC") Amongst its duties are seeing that the Takeovers and Mergers Code, as well as the Listing Rules, are observed.

16. For a deal between Tomson Pacific and Bond Holdings to take place in the form it did, of Tomson Pacific acquiring 34.5% of the shares in Bond International while at the same time there was to be the placing of a further 31% of that same company's shares, there had to be the blessing in advance of the SFC, which is ever-vigilant for "concert parties". Unless involved in advance and its natural suspicions of a deal of the type proposed between Tomson Pacific and Bond Holdings allayed, the SFC could in practice have been an insuperable obstacle to the contemplated transaction going ahead in the form it took.

17. What Tomson Pacific and Bond Holdings together with the other interested parties and their advisers were able to achieve with the SFC was the waiver, as embodied in an SFC letter dated 16th May 1990 (Bundle 2, pages 283 to 286), of any general offer obligation under Rule 33, provided that the proposed placement to be carried out by ChinTung Securities as placing agent was with persons independent from and not acting in concert with Tomson Pacific or Bond Holdings or any related person of either of them.

18. "Related person" was defined in a Placement Acknowledgement Form approved by the Chairman of the SFC's Takeovers and Mergers Committee. A condition attached by the SFC to the waiver was that all placees had to execute such a form which also had to be endorsed by Mr David Tong on behalf of Tomson Pacific. The form then had to be filed with the Chairman of that Committee. The relevant part of the form reads as follows:-

"We confirm that we are an independent party from and are not acting in concern with Bond Corporation International Holdings Limited ('BCIHL') and Tomson Pacific Limited ('Tomson') or any related party of either of them or any of their respective directors (or their close relatives, related trust or personal holding companies). For the purposes of this paragraph, 'related party' shall mean, in relation to BCIHL or Tomson, its parent company, subsidiaries and fellow subsidiaries, and their associated companies, and companies of which such companies are associated companies, all with each other (where 'associated company' denotes ownership or control of 20 per cent. Or more of the equity share capital of a Company, combined with the ability to exercise a significant influence over that Company)."

19. The Chairman of that Committee was also entitled to require further information to satisfy his Committee of the independence of the placees.

20. As events turned out, the Tomson Pacific Rights issue was a success, and the Placement Shares were all sold to placees within the time contemplated by the various agreements of 16th May 1990. Mr Raymond Lai, (the 2nd Defendant), Managing Director of ChinTung Securities, and brother of Mr Arthur Lai, its Chairman, confirmed to the SFC in writing on 23rd July 1990 to the effect that all of the Placement Shares had been sold to independent placees, and, in an internal memorandum, confirmed to the same effect on 25th July 1990.

21. Now a question has arisen about the independence of one of the placees - Mandarin Development Ltd, ("Mandarin"), the 5th Defendant, which, on a date between 20th and 25th July 1990 bought 8,050,494, being the final balance of the 419,950,494 Placement Shares.

22. So long as Mandarin really was independent of, and not acting in concert with Tomson Pacific, Bond Holdings or related parties, Tomson Pacific as underwriters and its two principal shareholders as sub-underwriters, cannot be called upon to make the general offer, involving HK$1,000 million or more already referred to.

23. The SFC now contends that, at the time Mandarin made its purchase, it was not independent of but, instead, acted in concert with, Tomson Pacific or Bond Holdings, since Mandarin was no more than a nominee of Mr Arthur Lai who was very much a related party because of the pivotal role he played in first of all bringing Tomson Pacific and Bond Holdings together, and then structuring the deal which led to Tomson Pacific gaining control of Bond International.

24. Because of disquiet over whether the Takeovers and Mergers Code might have been breached in the way Tomson Pacific got control of Bond International, the Financial Secretary, acting pursuant to s.143(1)(c) of the Companies Ordinance, appointed an Inspector on 28th August 1992 to investigate the transaction.

25. During the course of that investigation it came to light that by a letter dated 20th April 1990, Bond Holdings agreed to pay Mr Arthur Lai two million Australian dollars through his nominee company, Wealthcorp Investments Limited, ("Wealthcorp"), the 6th Defendant, for what was described as a "negotiation and success fee", (meaning "commission"), on completion of the sale and placement of the Bond International shares under the proposed arrangement between Bond Holdings and Tomson Pacific. Bond Holdings duly paid that $A2 million commission to Mr Arthur Lai on or about 28th June 1990, through Mandarin, with the concurrence of Wealthcorp.

26. It also came to light during the course of the Inspector's Investigation that, by a letter dated 31st May 1990, Tomson Pacific agreed to pay Mandarin, which Mr Arthur Lai admits was his nominee for this purpose, HK$26.4 million commission on completion of Tomson Pacific's acquisition of 34.5% of Bond International's issued capital, for having introduced Bond Holdings to Tomson Pacific and for acting as Tomson Pacific's agent for that acquisition.

27. The Plaintiff disputes that Mr Arthur Lai, Mandarin or Wealthcorp ever had the Plaintiff's authority to receive those payments of HK$26.4 million and $A2 million, and seeks by the present proceeding to recover both amounts from them on the basis of breach of fiduciary duty and conspiracy.

28. A further claim the Plaintiff makes against Mr Arthur Lai and Mandarin by the present proceedings is for the sum of $1,264,443, being the profit Mandarin, made on the sale between the 24th July and 1st August 1990, in various lots, of the 8,050,494 Bond International shares placed with Mandarin. The basis of that claim, too, is breach of fiduciary duty, in that Mr Arthur Lai took advantage, for his own benefit, of confidential information that came his way as Chairman and Director of ChinTung Securities that those 8,050,494. Bond International shares were available for placing, and, without the Plaintiff's consent, caused those shares to be placed with Mandarin, allegedly still acting as Mr Arthur Lai's nominee.

Mr Arthur Lai's Background

29. Mr Arthur Lai is a Chartered Accountant by training. Since qualifying, his career, for the most part, has been in stockbroking and other forms of finance.

30. Having worked for such internationally known investments institutions as Cazenove and Merrill Lynch, Mr Arthur Lai, in 1982, started his own unincorporated stockbroking firm, ChinTung, in Hong Kong.

31. One of the first people, he employed in those early days was Mr Peter Mou, the 3rd Defendant, who became the firm's financial director. In or about early 1987, Mr Arthur Lai brought in Mr Raymond Lai, his elder brother, to be managing director.

32. Under Mr Arthur Lai's leadership, ChinTung blossomed to the point where, by 1987, it was the largest local stockbroker in Hong Kong, it had branches in something like seven major international financial centres, and, world-wide, employed over four hundred people.

33. ChinTung branched out into other areas of financial dealing such as real estate business, (ChinTung Land Ltd), futures trading, (ChinTung Futures Ltd), and lending money for margin trading on securities (ChinTung Finance Ltd).

34. ChinTung Futures Ltd, by 1987, was the futures' trader doing the largest volume in Hong Kong of trading in the then relatively novel Hang Seng Index Futures Contract.

35. To help finance his rapidly expanding business, Mr Arthur Lai brought in a partner, Arral Associates, which provided capital but left Mr Arthur Lai to get on with running the business his way.

36. By early 1987, Mr Arthur Lai had decided to seek a public listing for ChinTung. At or about that time, he found himself being wooed by SCB which, lacking a retail stockbroking arm, viewed his business as a convenient means of moving into that sphere. A stockbroking business would complement SCA's merchant banking activities. SCB's overtures to take over his business were on the basis of his business having a value of approximately four hundred to four hundred and fifty million Hong Kong dollars, but Mr Arthur Lai was not interested, since he expected his business to develop to a point where its value would exceed one thousand million Hong Kong dollars.

37. To enable him to buy out Arral Associates' interest in the business, SCB were happy to lend him, on the strength of his personal guarantee, somewhere between thirty-five and forty million Hong Kong dollars, which, at the time, relative to the estimated value of his business, must have seemed a modest sum.

38. If Mr Arthur Lai had had his way, he would have gone to the market in about March to May 1987, but the earliest date he could get from the Stock Exchange's Listing Committee was November that same year.

39. Disaster struck for Mr Arthur Lai on "Black Monday" in October 1987 when stock markets around the world crashed, the loss in Hong Kong being far steeper than elsewhere due to the unique approach of those responsible for running the Hong Kong Stock Exchange in suspending all trading for four business days. ChinTung Futures Ltd had a net long position on Hang Seng Index Futures. On re-opening, the Hang Seng Index was down well over thirty per cent. That translated into a debt exceeding six hundred million Hong Kong dollars owed ChinTung Futures Limited by its customers who had been buying on margin.

40. "Black Monday" and his firm's position in the futures' market brought about the result for Mr Arthur Lai that the thirty five to forty million Hong Kong dollars borrowed on his personal guarantee suddenly loomed as a huge sum in the light of a seriously weakened stock market, and probable massive defaults by the customers of ChinTung Futures Ltd who had been trading on margin.

41. The scale of the disaster was immediately apparent to both SCB and Mr Arthur Lai who was in no position to re-pay the thirty-five or more million Hong Kong dollars SCB demanded from him forthwith under his personal guarantee.

42. Within days of Black Monday, Mr Arthur Lai agreed with SCB that its subsidiary, SCA, should take over ChinTung which became incorporated for the purpose of the exercise. SCA also took over the other parts of the ChinTung empire such as ChinTung Land and ChinTung Finance which still looked viable, whilst the less promising parts, such as ChinTung Futures remained with Mr Arthur Lai.

43. Leading the SCA team in its negotiations with Mr Arthur Lai on taking over his companies was Mr Christopher Wigan, SCA's Chief Executive, and one of its directors.

44. The general arrangement agreed between Mr Wigan and Mr Arthur Lai was that Mr Arthur Lai and those working for him such as Mr Raymond Lai and Mr Peter Mou should continue to conduct the stockbroking operations of ChinTung Securities, since stockbroking was an area in which SCA lacked expertise, but that SCA financial controllers would be drafted as directors to ChinTung Securities' board to monitor the company's financial management, a particular area of concern for SCA being the granting of margin credit.

45. The great attraction for SCA in retaining Mr Arthur Lai was his vast range of business contacts which SCA hoped profitably to tap. Mr Arthur Lai himself, in his evidence before me recognized that when he stated that the advantage to the Standard Chartered group in having his services was that he was the one who brought in most clients.

46. There can be no dispute that the over-all agreement Mr Arthur Lai reached with SCA contained a substantial financial incentive for him (beyond an agreed salary of $130,000 per month), in that there was an explicit provision for sharing annual profits of ChinTung Securities in excess of five million Hong Kong dollars to enable him to pay off his debt to SCB.

47. An area where there is dispute, at least of fact, though, is whether there was an understanding between the SCB side and Mr Arthur Lai that, as a further incentive to him, he would be permitted to broker private deals with customers or potential customers of ChinTung Securities to earn commission for which he need not account to ChinTung Securities.

48. A formal written contract, dated 26th April 1988, setting forth the terms of his employment ("the Service Agreement") was entered into between ChinTung Holdings and Mr Arthur Lai. Much hard-bargaining from "Black Monday" onwards between Mr Wigan representing SCA's interests, and Mr Arthur Lai for himself, preceded the execution of that agreement.

49. In unmistakably clear terms, the essence of that agreement is to the effect that in consideration of a salary of $130,000 per month, Mr Arthur Lai is to devote all his time and energies to the business of the ChinTung Group (defined as ChinTung Holdings and its subsidiaries, which, of course, included ChinTung Securities), and, without the consent in writing of ChinTung Holdings' Board of Directors, he was not to be engaged in any other business.

50. I now set out the relevant passages of the Service Agreement. The references to "the Executive" are to Mr Arthur Lai and "the Company" is ChinTung Holdings.

"2. The Executive shall serve the Company as chairman and shall act as a dealing director of the Company's broking subsidiary in Hong Kong and shall undertake such journeys overseas as are required by the Company for the proper performance of his duties. As part of his duties, the Executive shall also provide such services to other members of the ChinTung Group as are required by the Board from time to time.

3. During the continuance of this Agreement, the Executive

(a) shall perform such duties and exercise such powers as are from time to time delegated to him by the Board and shall obey the reasonable lawful directions which the Board may from time to time assign to, vest in, or impose upon him and all rules and regulations from time to time laid down by the Company concerning its employees;

(b) unless and to the extent otherwise agreed by the Board or prevented by ill-health, shall carry out his duties in a proper, loyal and efficient manner and shall devote the whole of his time and attention to the business of the Company and the ChinTung Group both during normal business hours and also at other times when requested by the Company to do so or when it may be necessary for the proper and efficient conduct of such business and shall use his best endeavours to promote the interests and reputation of the Company and the ChinTung Group.

4.

(a) The Company shall pay to the Executive by way of remuneration for his services hereunder a salary of HK$130,000 per month payable in arrears on the last day of each month. The Executive shall also be entitled to two extra months' salary each calendar year if he is still employed by the Company on December 31 in such year.

7. The Executive shall not, except with the consent in writing of the Board, or directly or indirectly engaged or interested during the continuance of this Agreement in any other business or in any occupation whether of profit or otherwise or have any financial interest in any other business which may, in the opinion of the Board, preclude him from carrying out his duties efficiently or which may be detrimental to the interests of the Company."

51. Mr Arthur Lai claimed before me that there was an oral understanding reached between himself and Mr Wigan during the course of the negotiations for the Service Agreement that ChinTung Holdings was agreeable to his doing his own business on the side outside of ordinary working hours, and that was reflected in Clause 7 which meant he was permitted to do outside work, (in which category he placed the commissions he had negotiated with Bond Holdings and Tomson Pacific), unless in the opinion of the Board of ChinTung Holdings the work were detrimental to the interests of the ChinTung Group. If his outside work were detrimental to the ChinTung Group, he had to get written permission from the Board of ChinTung Holdings to do it.

52. Why the ChinTung Group were willing to countenance such an arrangement, according to Mr Lai, was that they realized a salary of only $130,000 per month was too low for him, and they knew he would have to supplement it in order to make the money necessary to clear up the problems of the companies in the ChinTung Group not taken over by SCA.

53. In Mr Arthur Lai's view, his taking the commissions of A$2 million from Bond Holdings and $26.4 million from Tomson Pacific was not detrimental, but beneficial to ChinTung Holdings and the ChinTung Group, since, through his instrumentality, ChinTung Securities got placing commission and ChinTung Holdings' parent, SCA, got commission as financial adviser to Tomson Pacific, which, so he claims, would not otherwise have gone their way.

54. I do not think for one moment that Mr Wigan or anyone else for SCA or the ChinTung Group would have agreed to the highly improbable arrangement Mr Arthur Lai claims existed. For Mr Arthur Lai to claim that such an implausible understanding had been arrived at, when the Service Agreement, on any reading, plainly said the opposite, was one of many indicators of Mr Arthur Lai's not being a credible witness.

Tomson Pacific and Mr David Tong

55. Tomson Pacific, controlled by Mr David Tong, was part of a group of Hong Kong listed companies which included Rivera, and Peace River.Mr David Tong normally resided in Taiwan.

56. For a good many months prior to Tomson Pacific's seeking to take over Bond International, SCA, together with ChinTung Securities, had been targeting Taiwan as a prospective source of wealthy investors in Hong Kong.

57. ChinTung Securities had even gone to the length of entering into a joint venture agreement with a Taiwan-based commodity-broking firm, Rosenthal Ltd., ("Rosenthal"), to share commissions on trades made on the Hong Kong Stock Exchange through ChinTung Securities by Rosenthal on behalf of clients in Taiwan.

58. Amongst the earliest, if not the earliest, of ChinTung Securities' Taiwan-based clients was Mr David Tong. Mr David Tong built up a stable of Hong Kong-listed companies in which he held substantial interests, including Tomson Pacific and its related companies to which I have already made reference.

59. Companies in Mr David Tong's Tomson Pacific group had been clients of ChinTung Securities well before Mr Arthur Lai actually met Mr David Tong, in early 1990, for the first time.

60. By the time Mr Arthur Lai got to meet Mr David Tong, Tomson Pacific and its associated companies were on the way to developing close commercial ties in Hong Kong with SCA. Besides acting for Tomson Pacific and companies within that group on various one-off transactions such as right issues and setting up a joint venture, SCA, by a letter dated 22nd November 1989, was retained by Tomson Pacific, and the companies in its group, as a financial adviser, for a monthly fee which included:

"...general advice on financial matters relating to your group, any correspondence, liaison with the Stock Exchange and the Securities & Futures Commission, presentation of annual statutory accounts and initial assessment on merger and acquisition opportunities identified from time to time. (my underlining)"

61. Unsurprisingly, SCA acted in tandem with its subsidiary, ChinTung Securities, whenever it could in relation to the affairs of Tomson Pacific and its group so that, for example in March 1990, one finds SCA acting as financial adviser and ChinTung Securities as a placing agent on the issue of new shares for Rivera (Holdings) Ltd, a company belonging to the Tomson Pacific group.

62. It was either in January or February 1990 that Mr Arthur Lai, on a business trip to Taiwan, paid for by the Plaintiff, met Mr David Tong.Rosenthal was run by a pair of brothers, John and Rustom Ho.

63. The Ho brothers had a Taiwan-based business associate, Mr Patrick Poon, who also happened to be a business associate of Mr Arthur Lai.

64. During the January or February 1990 Taiwan visit, Mr Patrick Poon confided to Mr Arthur Lai information that Mr David Tong might be interested in making further business acquisitions in Hong Kong, and that he could get an introduction to Mr David Tong for Mr Arthur Lai through the Ho brothers. Mr Arthur Lai there and then promised Mr Patrick Poon that if any commission came Mr Arthur Lai's way from Mr David Tong or his companies in relation to business arising from the introduction, he would give Mr Patrick Poon 40% of it.

65. Mr Patrick Poon duly arranged a dinner at which Mr Arthur Lai and Mr David Tong were both guests.

66. Mr Lai seems to think it was significant that he paid his own way at that dinner, rather than billing the Plaintiff for it, by way of entertainment expenses, and, for what it is worth, I am prepared to accept that was the case.

67. Although Mr Arthur Lai had not previously met Mr David Tong, he knew already that companies in which Mr Tong was interested had bought and sold shares through ChinTung Securities. That emerges from the answer Mr Arthur Lai gave to the Inspector at page 192 of the record.

"Q. ...had you ever dealt with David Tong before on a business level, personally?

A. No I think David, they have the interest, they came, well not directly with me but you know, David they have, I think some of their friends have meetings, have actually come with us. I think they also have a security account with us and they buy shares and sell shares, they have acquired shares, so we have already -- I think when we first started they start doing business with us. I mean otherwise I won't have the incentive of showing them the deal as well. I think that is really how it all works."

68. Precisely what transpired at that dinner is not all that important, but, as a matter of common sense, it is difficult to imagine that Mr Arthur Lai was not introduced to Mr David Tong as the chairman of the ChinTung group, and Mr David Tong to Mr Arthur Lai as controlling shareholder of the Tomson Pacific group. It is equally difficult to imagine that, even before they were formally introduced, Mr David Tong, an obviously successful businessman who no doubt has his wits very much about him, did not know that Mr Arthur Lai was the chairman of a Hong Kong stockbroking company, owned by SCA, which is backed up by the wealth of SCB.

69. It is clear that, from the outset, Mr Arthur Lai knew full well that why Mr David Tong might be interested in meeting him was because of Mr Arthur Lai's position in ChinTung Securities which would facilitate Mr David Tong's acquisition of shares in public companies in Hong Kong. That can be discerned from Mr Arthur Lai's following exchange with the Inspector at page 207/8.

"Q. What is your interest in Mandarin?

A. Well Mandarin is a company, really set up when I do the deal here, and it is because when Patrick Poon introduced me to a deal and of course you know how it is done, initially I said, well you know it is a ChinTung deal, and he said, why don't you do it yourself, because you know... doesn't really involve in matching deals, doing corporate finance work and such. And I said, well I could be interested. Of course in the market practices if you do a deal like this you always have to split commission, so to speak, whatever you can get with whoever introduced you to the deal. And Patrick introduced me to the Ho's (Hungs?), the Ho's (Hungs?) introduced Tomson, so that was the deal with Patrick, and at that moment I reckoned if there is any commission I will have 60/40, I think that was really the arrangement."

70. Obviously, Mr Arthur Lai knew all along it was "a ChinTung deal", which, in context, meant a deal to be conducted by ChinTung Securities. Common sense defies any other realistic possibility.

71. Even supposing that all the time at the dinner was spent on exchanging pleasantries, there is no doubt that when Mr Arthur Lai and Mr David Tong next got together, which was a few weeks later in Hong Kong, the conversation was about business, one topic in particular being Mr David Tong's interest in making further acquisitions of publicly-listed companies in Hong Kong, either for himself, or for companies in which he was interested. Mr David Tong asked Mr Arthur Lai to look for such opportunities for him.

Bond Holding's and Mr Peter Lucas

72. It so happened that shortly before then, Mr Peter Lucas, a director of Bond Holdings, had mentioned to Mr Arthur Lai that Bond Holdings, which, at the time, suffered from a liquidity crisis, was anxious to sell the 881 million shares it held, representing 65.9% of the issued capital of Bond International, a viable company.

73. As a matter of common sense, the only reason Mr Lucas, a businessman, imparted that information to Mr Arthur Lai was because he knew that Mr Arthur Lai was a director of the stockbrokers, ChinTung Securities, which had the merchant bank, SCA standing behind it.

74. Mr Lucas was not actually letting Mr Arthur Lai into any great secret since it was fairly common knowledge then that Bond Holdings, strapped for cash, was anxious to make asset sales.

The Mechanics of the Takeover

75. A practical impediment to Bond Holdings' disposal of its Bond International shares was the charge Bond Holding's had granted H.S.B.C. over them to secure huge advances to Bond Holdings.

76. Pursuant to his understanding with Mr David Tong, Mr Arthur Lai suggested to the former that Tomson Pacific should try to gain control of Bond International. Mr David Tong was in favour.

77. The mechanics of such a takeover were quite complicated. The price per Bond International share had to suit each of Bond Holdings, HSBC and Tomson Pacific. They were able to agree on HK$2.25 per share.

78. Tomson Pacific favoured the route of acquiring just under 35% of Bond International's issued capital, since that would give Tomson Pacific effective control without triggering the general offer provision of the Takeovers and Mergers Code, and having the other 31.4% placed with parties independent of Bond Holdings and Tomson Pacific.

79. Just to purchase 31.4% at $2.25 per share would cost approximately HK$945 million. If the general offer mechanism were triggered, Tomson Pacific would become liable to purchase not only the 31.4% it hoped to see placed, but also the remaining balance of the issued shares to make up 100%, all at a price of not less than HK$2.25 per share. Instead of having to fund only $1,038 million for 34.5% of the issued capital, Tomson Pacific would need close to $3,000 million to acquire 100%.

80. Mr Arthur Lai emphasised time and time again in his evidence how, the whole way through, he tried to bring ChinTung Securities and SCA into the deal so they could earning placing commission and financial adviser's fees, respectively, but not to the exclusion of the commissions he had in mind for himself personally from Tomson Pacific and Bond Corporation for having brought them together. Mr Arthur Lai was hoping for what he described as a "perfect marriage", where ChinTung Securities and SCA received the fees and commission he had in mind for them at full commercial rates, while he pocketed from Tomson Pacific and Bond Holdings whatever they were prepared to pay as "introduction fees" or "success fees", for having brought them together.

81. At first, HSBC wanted to do the deal "in-house", using its own merchant banking arm, Wardley's Ltd ("Wardley's"), and stockbrokers of its own choosing. If the deal had gone ahead that way, Mr Arthur Lai would still, presumably, have wanted to pocket commission for himself from Bond Holdings and Tomson Pacific, but there obviously would have been no placing commission for ChinTung Securities and no advisory fee for SCA.

82. Wardley's, for some reason being unable or unwilling to stitch the whole deal together, HSBC then adopted a stance of no longer standing in the way of ChinTung Securities and SCA participating, so that Mr Arthur Lai was able to fulfil his wish, as expressed in his evidence, of bringing them in as placing agent and financial adviser, respectively.

83. I accept that it was due largely to Mr Arthur Lai's flair and energy that the deal was cast in such a form as to make it practicable to go ahead.

84. Tomson Pacific, with SCA as their financial advisers, were to make a rights issue to raise the necessary $1,000 million to purchase 34.5% of Bond International at $2.25 per share.

85. ChinTung Securities was to be placing agent on a "best endeavour" basis to place the remaining 31.4% of Bond International owned by Bond Holdings with placees independent of and not acting in concert with either Bond Holdings or Tomson Pacific.

86. Tomson Pacific underwrote, and Mr David Tong together with Dr Stanley Ho, the principal shareholders of Tomson Pacific, sub-underwrote the placement and ensuing general offer if the placement to independent placees did not eventuate.

87. The fact that SCA and ChinTung Securities, standing as they did in the relationship of parent and subsidiary, were not seen to be independent of each other was obviously a cause of great concern to the SFC which would obviously have preferred the financial adviser and the placing agent to have stood in an unmistakably adversarial relationship to each other, with a view to the Takeovers and Mergers Code being observed with maximum rigour.

88. ChinTung Securities' own solicitors, in a letter dated 24th May 1990 to their client, for the attention of Mr Arthur Lai, pointed out the potential for conflict of duty and interest which existed for ChinTung Securities by virtue of its involvement, on the one hand, with both Bond Holdings and Tomson Pacific in helping along the bargaining process which led to their agreement, and, on the other hand, the need for it, in its capacity as placing agent, to remain scrupulously detached so as to avoid any suggestion of concert parties.

89. After obvious misgivings, reflected in its letter of 16th May 1990 to SCA in relation to the potential for breaches of the Takeovers and Mergers Code, the SFC allowed the deal to go ahead with the structure Mr Arthur Lai had played so major a part in devising.

90. It is unnecessary for present purposes to go into all the technicalities of the interlocking series of agreements, all dated 16th May 1990 which brought about the practical results that Bond Holdings sold all its 881 million shares in Bond International at $2.25 each, H.S.B.C. got repaid with the proceeds, Tomson Pacific gained control of Bond International by acquiring the 34.5% of its issued capital on or before the 28th June 1990, ChinTung Securities found placees for the remaining 31.4% before 25th July 1990, Tomson Pacific as underwriters, together with Mr David Tong and Dr Stanley Ho as sub-underwriters, were all treated as spared any contingent liability to make a general offer, SCA got its adviser's fee, and ChinTung Securities got placing commission.

Commission for Mr Arthur Lai

91. Mr Arthur Lai, too, received commission. On or about 22nd June 1990, he received HK$26.4 million from Tomson Pacific, and, on or about 29th June 1990, A$2 million from Bond Holdings. The cheques for those two amounts were both made payable to Mandarin. Those are two of the amounts the Plaintiff seeks to recover by the present proceedings.

92. The agreement between Bond Holdings and Mr Arthur Lai leading to the payment of the A$2 million is embodied in a letter dated 20th April 1990, from Bond Corporation to Mr Arthur Lai, and Wealthcorp, which Mr Arthur Lai admits was his nominee for that purpose. The letter was as follows :-

"This letter confirms that upon and subject to the due completion of the purchase by Tomson Pacific Limited ('TPL') or interests associated with TPL of 34.5% out of our holding of 65.89% of the issued capital of Bond Corporation International Limited and the completion of the placement of the balance of 31.35% we will pay you a negotiation and success fee equaling the Hong Kong dollar equivalent of AUD2.0 million which will include all of your out of pocket expenses and costs."

93. The agreement giving rise to the $26.4 million Mr Arthur Lai received from Tomson Pacific is evidenced by its letter dated 31st May 1990 to him and his nominee, Mandarin :-

"Dear Sirs,

In connection with your company introducing to us and acting as, agent for our acquisition, of 34.5% of the issued share capital of Bond Corporation International Ltd., Tomson Pacific Limited agrees to pay Mandarin Development Limited a cash commission of HK$26,400,000 seven days before the completion date of the said acquisition.Kindly acknowledge acceptance by signing below."

94. The agreement between Mr Arthur Lai and Mr David Tong on behalf of Tomson Pacific in relation to the $26.4 million commission for Mr Arthur Lai had in fact been reached several weeks earlier, and, in all probability at or about the same time as Mr Lucas, on behalf of Bond Holdings, offered to pay Mr Arthur Lai $A2 million, namely, on or about 20th April 1990.

95. The somewhat odd sum of $26.4 million stems from Mr Arthur Lai's having earlier agreed orally with Mr David Tong that he would use the cash Tomson Pacific paid him for commission to purchase thirty-three million of the new shares under Tomson Pacific's rights' issue to finance its purchase of the 34.5% of Bond International. As the issue price announced on 29th May 1990 was 80 cents per share, 33 million of them cost the $26.4 million to which the letter refers.

Fiduciary Duty and its Breach

96. It is common ground that Mr Arthur Lai, as a director of ChinTung Securities, owed it fiduciary duties to act bona fide in the best interests of ChinTung Securities.

97. The law is clear that, as a fiduciary, Mr Arthur Lai was not permitted to make use of opportunities coming his way, by reason of his being its director, to enrich himself personally without the informed consent of ChinTung Securities, his principal.

98. That is trite law, established by a long line of cases including Cook v. Deeks [1916] A.C.554; Phipps v. Boardman [1967] 2 A.C.46; Industrial Development Consultants Ltd. v. Cooley [1972] 1 WLR 443; and Guinness Plc v. Saunders [1990] 2 A.C.663.

99. It is also well-established law that it is no answer to a claim by the company to recover such profits from its director that the company itself could never have obtained them, or that no loss is caused to the company by the gain of the director: see Furs v. Tomkies (1936) 54 CLR 583 and Regal (Hastings) Ltd. v. Gulliver [1967] 2 A.C.34.

Whether ChinTung Securities knew of And/Or Consented to the $A2 Million Bond Holdings and $26.4 Million Tomson Pacific Commissions

100. At the time Mr Arthur Lai negotiated with Mr David Tong of Tomson Pacific for the payment of $26.4 million commission to Mr Arthur Lai's nominee, Mandarin, and with Mr Lucas of Bond Holdings for the payment of $A2 million to his other nominee, Wealthcorp, Mr Arthur Lai's co-directors in ChinTung Securities were his brother, Mr Raymond Lai as Managing Director, Mr Peter Mou, who had worked with Mr Arthur Lai since 1983, as Sales Director, Mr Wigan, representing SCA's interest, Mr Patrick Yeung, Finance Director, representing SCA's interests, Mr Gary Wong, who was in charge of the Settlement Department, representing SCA's interests, and there were also a Mr Michael Tong, a Mr Dickson Ho and a Mr Eugene Yang. At all material times, that is to say, from about the beginning of 1990 up until about August 1990 the directors remained the same.

101. Even on Mr Arthur Lai's best case, he does not claim that, before the payment of the commission to his nominees, Mandarin and Wealthcorp at the end of June 1990, all the directors of ChinTung Securities knew of, let alone consented to such payments.

102. From the totality of the evidence in this case I have, in fact, no doubt at all that, apart from Mr Arthur Lai, Mr Raymond Lai, and Mr Peter Mou, it was not until at least January 1993 that any of the other directors of the Plaintiff or companies in the ChinTung group got to learn anything about the $26.4 million from Tomson Pacific and A$2 million from Bond Holdings that Mr Arthur Lai had received by way of commission in late June 1990 through his nominee, Mandarin.

103. In February 1993, Mr Arthur Lai first gave evidence to the Inspector. He was obviously in an expansive mood on that occasion. He was, I think, quite proud of the deal he had engineered for Tomson Pacific to get control of Bond International and slightly boastful. Some two and a half years had passed since he had received the commission. He had long since left the ChinTung Group, and the money had in effect, all gone. The probabilities are that, at the time he gave his evidence to the Inspector, he was blissfully unaware of the law on secret commissions, and that he regarded the circumstances in which Mandarin came to accept the placement of the residual 8 million Bond International shares as so much water under the bridge by then, posing no threat to him.

104. From Mr Arthur Lai's answers to the Inspector then, and the rest of the evidence in this case, there is no room for doubt that he deliberately arranged for the Bond Holdings/Tomson Pacific deal to be carried out in such a way that, apart from Mr Raymond Lai and Mr Peter Mou, none of the other people running the Plaintiff, the ChinTung Group and SCA would even be so much as aware, let alone approve of, his being paid the A$2 million by Bond Holdings, and $26.4 million by Tomson Pacific.

105. Nothing could show more clearly than the following questions and answers from the Inspector's record at pages 235/6 that he let neither the Plaintiff, nor the other companies in the group, nor SCA know about the commissions he received from Bond Holdings and Tomson Pacific:

"Q. ---was ChinTung Securities Limited aware that you were going to get that commission?

A. No, I mean I must say all along in my whole life in ChinTung I never get commission for myself. I mean I was Chairman and I never do, but after the Standard Chartered Bank have taken over a lot of people say, 'Arthur, I don't want to give them 10 per cent commission, I want to give it to you, because why do you want to work so hard and get nothing?' Because you know my whole life's earning was taking away by Standard Chartered, anyway, because they got hold of everything that I had, I mean I basically was down to absolutely not a penny. So people always encourage me, and in a way I guess I have to look after myself. And my relationship with Standard Chartered is also quite clear that it will not be a very long term relationship, I help to rebuild the company, that is why I don't step in the day-to-day operation, I help them continue to build the infrastructure and I was maintained as the Chairman but I had already given up the Managing Director role in the company. And as a matter of fact, Christopher Wiggins was very involved in a lot of the Standard Chartered related business and I was involved in actually doing something on my own, and at that moment I didn't feel that I had to talk to Standard Chartered or ChinTung, provided I have looked after their interests. My job is to make sure that Standard Chartered bank is involved, and ChinTung is involved, and that is my own sort of moral thinking, OK? So right or wrong, I don't know."

106. It is clear in context that by "ChinTung" in that answer Mr Arthur Lai must have meant the Plaintiff.

Continuing from the Inspector's record:

"Q. So is it the situation that the Board of Standard Chartered would not have known you were getting the commission?

A. No, I mean I don't think they would, but I mean I guess, you know, I already told them from day-one that I have my own personal business. I at that moment, I still have a big stake in a company in the Philippines and I have told them, disclosed that, I said I have said that I would earn money for myself. That is perfect because my staff is being paid 40,000 and I was only paid 8,000 because I don't want a big salary, so I don't collect a full salary as Chairman, so that is really the situation.

107. I do not accept the self-serving part of that last answer to the effect that SCB (or SCA) knew he would earn commission for himself.

Then, at page 237 from the Inspector's record:-

"Q. Well, did you not think that the Board should be advised, that the Bank interest should realise that you were personally standing to gain out of the deal?

A. No, that's why, you know, I think Raymond is aware of it, and I think Peter is aware of it, maybe a fair Chinese way I didn't think I should inform the other side.

Q. Well Raymond and Peter may be aware of it but what about the bank representatives on the Board?

A. I think they know a bit, they don't know a bit, you know. But you see my relationship with Standard Chartered was a bit odd, I very much worked like an adviser to them, I bring Christopher Wiggins - Christopher Wiggins is really the effective Chairman, you see I am really the Chairman by name and I help him, so I bring him to Thailand and I bring him to Taiwan and I make him understand the deals, the distribution deals that we have.

Q. And did he know you were getting a commission through Mandarin?

A. I would think they might know but I don't know if they really do, because I mean I am quite open about it.

Q. Well, did you take any steps to inform them?

A. No, I didn't. I mean if that is your question, the answer is no."

108. In due course I will have more to say on credibility, but, for the moment, suffice it to say that I am fully confident that Mr Wigan, together with Mr Patrick Yeung and Mr Gary Wong, the other two directors of the Plaintiff appointed to protect SCA's interests, told me the truth when they denied having any inkling about the commission Mr Arthur Lai was receiving until they got to hear what had transpired during the Inspector's examination of Mr Arthur Lai, and I have no doubt at all that Mr Arthur Lai, aided and abetted by "the Old Guard", comprising Mr Raymond Lai and Mr Peter Mou, did everything in his power to conceal from Mr Wigan, Mr Patrick Yeung, Mr Gary Wong and anyone else representing SCB/SCA's interest in ChinTung Securities that commission was being paid to Mr Arthur Lai by Bond Holdings and Tomson Pacific.

109. The impression I get from reading Mr Arthur Lai's evidence to the Inspector in February 1993, in the context of all the evidence in this case, is that he did not feel that the SCA interests had too much to complain about in relation to the commission he had taken from Tomson Pacific and Bond Holdings, since SCA had got an adviser's fee and ChinTung Securities placing commission, and without his initiative and flair in putting the whole deal together, they would have got nothing.

110. Although I do not doubt that, judged by his own personal standards of commercial morality, Mr Arthur Lai did not feel he had really done anything too wrong at the time he first gave evidence to the Inspector, and for that reason was so forthcoming about his actions, the law simply does not permit a company director in Mr Arthur Lai's position to retain for himself commissions arising by virtue of his position in the company, as so clearly happened in the circumstances of the present case.

111. Mr Arthur Lai attempted to change some of the fundamental features of his earlier story after the no-doubt rude awakening he received on being served on 1st April 1993 with the writ in the present proceedings together with a Mareva injunction.

112. Since 1st April 1993, whether in his affidavit in reply to the Mareva, his further evidence to the Inspector in July 1993, his witness statement prepared for this trial, and in his evidence in court, Mr Arthur Lai has been at pains to stress how, generally, he had been open in his dealings with his co-directors, but, I was satisfied, at the end of the day, that Mr Raymond Lai and Mr Peter Mou were the only directors of ChinTung Securities in the know about the commissions Mr Arthur Lai garnered for himself from Bond Holdings and Tomson Pacific.

113. Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou were, I am satisfied, at all material times, in the nature of a "firm within a firm", prepared, for their own private advantage to assist one another hoodwink the other directors on the Plaintiff's board in relation to the Plaintiff's business.

114. From the time Mr Arthur Lai negotiated his own private commissions with Bond Holdings and Tomson Pacific up until the time the money found its way into Mandarin's account and even beyond, it is only the members of that trio who are ever involved.

115. When Mr Peter Lucas of Bond Holdings sent his letter of 20th April 1990, agreeing to pay the $A2 million "success fee" to Mr Arthur Lai and/or his nominee Wealthcorp, that letter went to Mr Arthur Lai alone. When a letter dated 16th May 1990 was sent (at the request of Mr Peter Lucas, I am sure,) on ChinTung Securities' letterhead to Bond Holdings, purporting to confirm that ChinTung Securities was aware of the $A2 million commission to be paid Mr Arthur Lai, and/or Wealthcorp, it was Mr Raymond Lai and Mr Peter Mou who purported to sign on behalf of ChinTung Securities. When an acknowledgement was made, on behalf of Mandarin to Tomson Pacific's letter of 31st May 1990, offering to pay the introduction fee of $26.4 million to Mandarin, Mr Peter Mou was the signatory for Mandarin. When a new Luxembourg bank account each was opened for Mandarin and Wealthcorp through a Hong Kong branch of the Union Bank of Switzerland on 11th June 1990, the signatories were Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou. When ChinTung Securities was stuck with 8,050,494 Bond International shares still unplaced from about the 19th or 20th July 1990 onwards, thus threatening to make the whole placement exercise fail, it was Mr Arthur Lai who found a placee - Mandarin - and Mr Peter Mou who opened a margin account with ChinTung Securities for Mandarin on 24th July 1990 without any payment of deposit or proper documentation. When, by 4th August 1990 at the latest, it came to the attention of Mr Raymond Lai that information he had furnished for the SFC in writing on 23rd and 25th July 1990 as Managing Director of ChinTung Securities, was wrong, in that he had then said that Hauxton Ltd ("Hauxton") was the placee of the final 8,050,494 placement shares, he failed to inform the SFC that Mandarin had later substituted for Hauxton, with the result that the SFC did not get to know that Mandarin was a placee until the Inspector's Investigation.

116. Mr Arthur Lai would like this court to believe that the letter of 16th May 1990 sent to Mr Lucas of Bond Holdings purportedly on behalf of ChinTung Securities confirming knowledge of the $A2 million "success fee" is an example of Mr Arthur Lai's openness. He tried to make out that he had it sent on his own initiative, because he was so open, whereas the content of the letter is in fact strongly suggestive of its being sent at the request of Mr Lucas who must have harboured some doubts on whether ChinTung Securities was aware of what Mr Arthur Lai was up to. I quote the letter :

"This letter is to confirm that ChinTung is aware of a fee of HK$12 Million or an equivalent of A$2 Million to be paid by bond Corporation International Holdings Limited (BCIH) to Wealthcorp Investment Limited for services rendered in connection with the introduction of Tomson to BCIH leading to the sales of 34.5% and 31.5% of BCIH's holding in Bond Corporation International Limited."

117. If Mr Arthur Lai were so open, it is surprising he did not send a similar letter to Tomson Pacific, unprompted.

118. A copy of that letter of 16th May 1990 was also sent to Mr McIntyre who handled Bond Holdings' account at HSBC. The probabilities, in my view, point towards Mr Arthur Lai's causing Mr McIntyre to be sent that copy because Mr Lucas insisted on it, rather than because of any inclination towards transparency on Mr Arthur Lai's part.

119. Mr Arthur Lai contended that his sending a copy of that letter to Mr McIntyre was consistent with his not trying to hide anything from the SCA - appointed directors of ChinTung Securities who might well have learnt from Mr McIntyre of the $A2 million commission being paid by Bond Holdings to Mr Arthur Lai.

120. I can see no reason why Mr McIntyre might want to pass on that information to either SCA or ChinTung Securities, which were subsidiaries of a rival bank.

121. There was no reason for me to doubt the evidence of Mr Wigan, Mr Patrick Yeung and Mr Gary Wong that no information had come their way from Mr McIntyre.

122. Ms Violet Ma, who was Mr Raymond Lai's secretary at all material times, was called as a witness by Mr Arthur Lai with a view to showing there was nothing clandestine in the way he and Mr Raymond Lai dealt with the letter of 16th May 1990 on ChinTung Securities letterhead to Mr Lucas of Bond Holdings about the $A2 million commission for Wealthcorp and the letter of 31st May 1990 from Tomson Pacific to Mandarin about the $26.4 million for Mandarin.

123. According to Ms Ma, she put copies of those two letters, at or around the time they were made, on a Bond Holdings/Tomson Pacific Takeover correspondence file kept in a place outside Mr Raymond Lai's office where it was accessible to any ChinTung Securities director wanting to consult it.

124. Any director of ChinTung Securities happening to consult that file could indirectly glean the knowledge that Bond Holdings and Tomson Pacific were paying commission to Mr Arthur Lai, according to Ms Ma. I fail to see how the letter from Tomson Pacific linked Mr Arthur Lai to Mandarin which was a Liberian company with no directors, and its one and only share held by a Mr David Tang, Mr Arthur Lai's nominee, but the name "Wealthcorp" might have rung a bell with Mr Wigan, Mr Patrick Yeung and Mr Gary Wong since the house where Mr Arthur Lai resided was owned by Wealthcorp, and there had been discussions from time to time between Mr Arthur Lai and SCA - officials in relation to that house. The fact that the house in which Mr Arthur Lai lived was owned by Wealthcorp was, I am satisfied, something which Mr Arthur Lai had openly communicated to SCA whenever the topic of his residence arose.

125. She also claimed she would have circulated copies of those two letters to Mr Gary Wong and Mr Patrick Yeung, as a matter of office routine.

126. I did not accept Ms Ma's evidence. Her independence as a witness is open to doubt, since she is closely allied to the defence camp, having moved from job to job with Mr Raymond Lai. Moreover, the evidence as a whole in the case satisfied me that Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou did all

in their power to conceal from the directors of the Plaintiff representing SCA's interests that Mr Arthur Lai was receiving the commission referred to in the two letters.

127. In any event, even if every word Ms Ma spoke were the Gospel truth, it might go some way towards showing openness on Mr Arthur Lai's part about his personal commission, but would fall far short of showing Mr Arthur Lai's co-directors were all fully informed of all the facts before he took the private commission.

128. Another reason advanced by Mr Arthur Lai to show he hid no secrets in his dealings with the SCA-appointed directors on ChinTung Securities was the information SCA, as financial adviser to Tomson Pacific was bound to glean from the "Verification Note", which, according to Mr Arthur Lai, invariably features in a rights issue.

129. Verification Notes are related to the provision in the Listing Rules requiring a company making a rights issue to disclose all material contracts made during the two years preceding the issue of the prospectus for that rights issue.

130. Sometimes a merchant bank representing the company making the rights issue will retain the services of an independent accountant to prepare a "Verification Note", certifying, publicly, inter alia, whether the company has entered into "material contracts" during the preceding two years. "Material contracts" are those which are likely to be significant for the company's financial position, and not part of the company's day to day business. Paying $26.4 million to Mr Arthur Lai via Mandarin by way of an introduction fee was not part of Tomson Pacific's everyday business and was of sufficient magnitude to be significant to Tomson Pacific's financial position.

131. According to Mr Arthur Lai, the Verification Note which was bound to have come into existence for the Tomson Pacific rights issue was sure to announce to the world at large, including to SCA and the Plaintiff, the agreement by Tomson Pacific to pay the $26.4 million commission.

132. Mr Arthur Lai was, I am satisfied, wrong in his contention that a Verification Note invariably accompanies a rights issue. A valid alternative route to make the public aware of material contracts is a statement about them in the prospectus. That is made clear in a letter from Richards Butler, solicitors for Tomson Pacific, on the topic of "material contracts".

133. In any event, the rights issue prospectus in the present case, issued on 29th May 1990, did not make any reference to Mr Arthur Lai's commission which was evidenced by Tomson Pacific's letter of 31st May 1990. If that letter were taken as the date of the contract between Tomson Pacific and Mandarin to pay the $26.4 million commission, it was not "material" for the purposes of the Listing Rules since it was not made within the two years preceding the issue of the prospectus on 29th May 1990.

134. There is no reason to suppose that a Verification Note made on 31st May 1990 would have been any more forthcoming about the commission Tomson Pacific was paying Mandarin. How SCA or ChinTung Securities were supposed to guess that Mandarin equated with Mr Arthur Lai was never explained by Mr Arthur Lai.

135. There is the point, too, that, because knowledge might have been imparted to SCA and its directors, it by no means follows that same knowledge has been imparted to ChinTung Securities and its directors.

136. Far from having been open, as he contends, Mr Arthur Lai was, I think, as secretive as he could be with his co-directors, other than Mr Raymond Lai and Mr Peter Mou. Nowhere is this more apparent than in his use of nominees the whole time where a more open and honest man would simply use his own name.

137. Even if, in relation to commission, Mr Arthur Lai had been as generally open with his co-directors in ChinTung Securities as he claims, that, by itself, would not mean he had discharged the duty of disclosure imposed by the law on a fiduciary who seeks to retain commission which has come his way by virtue of his office. In the case of a company director seeking to retain such a commission, the law requires nothing less from him than prior disclosure to all his co-directors of full and particularised knowledge of the nature and extent of the commission he hopes to be able to keep for himself : See Imperial Mercantile Credit Associations v. Coleman (1873) L.R.6HL, 189 and Gray v. New Augarita Porcupine Mines Ltd. [1952]3 D.L.R.1.

138. It was obvious from the evidence that the directors of ChinTung Securities had not all been informed beforehand about the commission Bond Holdings and Tomson Pacific were going to pay Mandarin and Wealthcorp.

139. At one point under cross-examination Mr Arthur Lai went so far as to baldly assert that all his co-directors knew but scrutiny of the evidence does not support that assertion.

140. At most, the sum total of all the evidence of Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou, whether to the Inspector pre- or post- Mareva, whether in affidavits or witness statements, or, in the case of Mr Arthur Lai or Mr Raymond Lai, on oath to me, is that, apart from themselves, the only other director specifically asserted to have known about and approved the Bond Holdings and Tomson Pacific commissions before Mr Arthur Lai gave evidence to the Inspector was Mr Patrick Yeung. It was Mr Arthur Lai who specifically asserted that at one point, but, elsewhere, he indicates that Mr Patrick Yeung did not know, or he was not sure whether Mr Patrick Yeung knew.

141. Mr Arthur Lai did not claim to have told the other directors himself about the commissions: he told Mr Raymond Lai to tell them. Mr Raymond Lai nowhere claimed to have told them. Mr Peter Mou said Mr Arthur Lai told him he had told the other directors.

142. In relation to telling Mr Wigan in particular, Mr Raymond Lai in his witness statement and under cross-examination reported having been told by Mr Arthur Lai that the latter had spoken to Mr Wigan about the Bond Holdings/Tomson Pacific commissions, but Mr Arthur Lai himself was unable to recall any such discussion with Mr Wigan. Mr Arthur Lai claimed, however, to recall an occasion in his own office when Mr Raymond Lai carried on a conversation with Mr Wigan on the topic of commission in general for Mr Arthur Lai. While Mr Raymond Lai and Mr Wigan conversed, Mr Arthur Lai was doing something else.

143. Even on Mr Arthur Lai's best case, Mr Patrick Yeung was the only director, apart from Mr Raymond Lai and Mr Patrick Mou, allegedly spoken to about the commissions, but I am, in fact, satisfied he was never told a thing.

144. Whilst full prior knowledge by all of ChinTung Securities directors of the nature of the private commission received by Mr Arthur Lai is a necessary condition for Mr Arthur Lai to be excused from accounting for it to ChinTung Securities, it is not, however, a sufficient condition, since he must also show that he was duly authorised in accordance with the Articles of ChinTung Securities to receive it. He has to show what is known in this branch of the law as "informed consent".

145. Firstly, I will set out the definition of "the Board and the Directors", and then the Articles with which Mr Arthur Lai's compliance was necessary.

"the Board and the Directors

The directors for the time being of the Company or such of the Directors as are present at a duly convened meeting of the directors of the Company at which a quorum is present;"

" DIRECTORS REMUNERATION

Reimbursement of expenses	81. (a)	The Directors shall be paid out of the funds of the Company remuneration for their services as Directors such sum (if any) as the Company may by ordinary resolution from time to time determine.
	(b)	The Directors shall also be entitled to be paid their reasonable expenses incurred in consequence of their attendance at meetings of Directors, committee meetings and general meetings and otherwise in or about the business of the Company.
Extra remuneration	82.	The Company may award extra remuneration out of the funds of the Company (by way of salary, commission or otherwise as the Company may determine) to any Director who performs services which in the opinion of the Company are outside the scope of the ordinary duties of a Director.

POWERS OF DIRECTORS

Management of business	83.	The business of the Company shall be managed by the Directors, who shall pay all expenses incurred in the formation and registration of the Company, and may exercise all such powers of the Company as are not by the Ordinance or by these Articles required to be exercised by the Company in general meeting, subject to any provision in these Articles or the Ordinance and to such regulations, not being inconsistent with any such provision, as may be prescribed by the Company in general meeting; but no such regulation shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made. The general powers given by this Article shall not be limited or restricted by any special authority or power given to the Directors by any other Article.
Managers and agents	84.	The Directors may establish any agencies or appoint any individuals to manage any of the affairs of the Company, either in Hong Kong or elsewhere, and may fix their remuneration and may delegate to any such manager or agent any of the powers, authorities or discretion's vested in the Directors, with power to sub-delegate, and any such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit, and the Directors may remove any person so appointed, and may annul or vary and such delegation, but no person dealing in good faith and without notice or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.
Committees of Directors	86.	The Directors may, from time to time, appoint committees consisting of such member or members of their body as they think fit, and may delegate any of their powers to any such committee and, from time to time, revoke any such delegation and discharge any such committee wholly or in part.

Resolution in writing

106.

A resolution in writing signed by all the Directors shall be as effective for all purposes as a resolution of the Directors passed at a meeting duly convened, held and constituted. A written notification of confirmation of such resolution in writing sent by a Director shall be deemed to be his signature to such resolution in writing for the purposes of this Article. Such resolution in writing may consist of several documents, each signed or (in the case of a cable or telex message or facsimile transmission) purporting to have been sent by one or more Directors."

146. The "extra remuneration ... by way of ... commission", which is what Mr Arthur Lai received from Bond Holdings and Tomson Pacific, needed the sanction of ChinTung Securities' shareholders in general meeting to comply with Article 82. There was never any prospect of such a general meeting being called because the directors, apart from Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou, simply did not know what was going on in the company.

147. If power lay with the Directors under Article 83 to sanction payment of private commission to one of their number, that power had to be exercised at a duly convened directors' meeting to which all directors were invited and, at which, all the directors present were fully informed of all the facts. Consent, if it were forthcoming, would have to take the form of a properly passed resolution. Nothing like that happened here.

148. Mr Arthur Lai was simply wrong, as a matter of fact, in saying the Plaintiff never held board meetings, and even if he were right, full compliance with Article 83 was essential in the circumstances of the present case where a director was seeking these huge commissions for himself.

149. An alternative mode of sanctioning what Mr Arthur Lai wanted did exist under Article 106, but Mr Arthur Lai did not seek recourse to it, although the evidence discloses instances of such resolutions in writing signed by all the Plaintiff's directors. In passing, it can be noted that the letter dated 16th May 1990 to Bond Holdings signed by Mr Raymond Lai and Mr Peter Mou purportedly on behalf of ChinTung Securities is not such a resolution since it is not signed by all the directors and it is no substitute for such a resolution.

150. Articles 84 and 86 contemplate the Board of Directors delegating their powers, but there is no evidence to suggest any delegation of any power the Board might have had in relation to a director keeping for himself commission which would otherwise go to the company.

151. Nowhere in the minutes of any board or committee meeting of ChinTung Securities is there any reference to the commission in issue.

152. It is virtually inconceivable that Mr Arthur Lai's co-directors, additional to Mr Raymond Lai and Mr Peter Mou, could in fact have consented to his receiving the two huge sums by way of commission without its being minuted somewhere by the Plaintiff.

153. Informed consent from the directors and shareholders of ChinTung Securities for Mr Arthur Lai to receive the two disputed lots of commission was, in my judgment, wholly lacking. It was neither sought, nor granted.

The Reason Why Mr Arthur Lai Was Paid the Commission

154. A line of defence relied on by Mr Arthur Lai was that neither Bond Holdings, nor Tomson Pacific should be treated as a client of the Plaintiff for the purpose of the payments of the disputed sums of $A2 million and HK$26.4 million, respectively, because they were paid to him not by virtue of his position in the Plaintiff, but because he brought his two personal friends, Mr Peter Lucas and Mr David Tong together, enabling them to do the deal which resulted in Tomson Pacific taking over Bond International.

155. What Mr Arthur Lai thus puts forward by way of defence is basically a causation argument.

156. Whilst perhaps Mr Arthur Lai's personal relationship with Mr Peter Lucas and/or Mr David Tong might have played some minor contributory role in inclining either or both of Mr Peter Lucas and Mr David Tong to settle upon Mr Arthur Lai as the conduit which brought Bond Holdings and Tomson Pacific together to do business, the overwhelming cause for their so doing, in my judgment, was the position they knew he held as a director in the Plaintiff, a major stockbroking firm, which they also knew to have the backing of SCA, behind which, they would have been aware, stood SCB.

157. Considering that Mr Arthur Lai did not get to meet Mr David Tong until either January or February 1990, the contention about personal friendship being the reason for the payment from Tomson Pacific does not stand up to examination.

158. Neither does there seem to have been much in the way of friendship felt by Mr Lucas for Mr Arthur Lai, judging from the way Mr Lucas obviously insisted on getting the letter of 16th May 1990 purportedly from the Plaintiff to Bond Holdings, confirming that the Plaintiff was aware of the commission Bond Holdings was paying Mr Arthur Lai/Wealthcorp. It is clear that Mr Lucas did not trust Mr Arthur Lai, an attitude hardly compatible with friendship.

159. Even on Mr Arthur Lai's own evidence, it is clear that neither Mr Lucas, nor Mr David Tong was more than a business acquaintance.

160. Mr Arthur Lai was clutching at straws in asserting that friendship rather than his position in the Plaintiff was the cause of his being paid commission.

The Scope of the Plaintiff's Business

161. At no point has it been suggested, nor could it reasonably have been argued by any of the Defendants, that it would have been outside the scope of the Plaintiff's Memorandum of Association for it to engage in the business of brokering the take-over of a controlling interest in a publicly listed Hong Kong company, in consideration of the payment of such fee as it could negotiate from each of the seller and buyer of that controlling interest for bringing the transaction to a successful conclusion.

162. The line of argument instead put forward by the defence was that, in practice, the Plaintiff's business had been limited to the simple matching of buyers with sellers on trades of shares put through the stock-exchange, but had never extended to any sort of deal-making. "Cutting deals", to use Mr Raymond Lai's racey phrase, was the province of merchant banks, not stockbrokers, so the defence argument went.

163. Whether Mr Arthur Lai, with a view to earning commission for himself, had ever previously, while Chairman of the Plaintiff, participated in negotiations over the sale and purchase (including the price) of substantial chunks of a listed stocks where the buyer was seeking acquisition or control was something within the peculiar knowledge of Mr Arthur Lai, Mr Raymond Lai, too, no doubt, and probably also Mr Peter Mou.

164. At some points in his evidence Mr Raymond Lai, who, as a witness, did everything in his power to aid Mr Arthur Lai's case, seemed to be saying Mr Arthur Lai had a reputation for brokering such deals and receiving personal commission, but after making reference to a deal where Mr Arthur Lai had engineered the sale of 20% of publicly traded Continental Jewellery Ltd. to Mr Dickson Poon, and another where he was involved in selling 10% of the publicly listed shares of Great Eagle, Mr Raymond Lai backed away from the topic by saying he knew nothing specific about Mr Arthur Lai receiving any commission.

165. Mr Arthur Lai himself, in somewhat ambiguous terms, put it to Mr Raymond Lai in re-examination, as I understood it, that Mr Arthur Lai had received introduction fees on behalf of a middleman in a transaction involving the Reali family, and publicly-traded Lippo. Whether Mr Arthur Lai was himself one of those middleman, and whether he was chairman of the Plaintiff at the time was not made clear.

166. Mr Arthur Lai and Mr Raymond Lai were obviously aware they were skating on very thin ice in broaching the topic of whether Mr Arthur Lai had received other personal commissions while chairman of the Plaintiff or, for that matter, any other company. On the one hand, they wanted to raise the notion there was nothing uncommon in a company chairman receiving personal commission as some sort of middleman, but, on the other hand, they steered away from being frank to the point where they might attract yet more writs and Marevas heading in their direction.

167. The message I gathered that Mr Arthur Lai and Mr Raymond Lai were trying to get across to me, without, at the same time, stirring up further hornets' nests, was that it was not uncommon for company directors to rake off personal commission in connection with company business without the company knowing.

168. Whether such conduct on the part of company directors is common or uncommon in Hong Kong matters not one jot or tittle, since in the eyes of the law it is unqualifiedly wrong and any such commission plainly belongs to the company.

169. While it can be said with certainty that the Plaintiff under Mr Arthur Lai's chairmanship has so far itself never received the benefit of anything in the nature of introduction fees in relation to a take-over, I am satisfied that the scope of a stockbroker's business has for many years past embraced the arranging of takeovers. I did not accept the opinions of Mr Arthur and Mr Raymond Lai that merchant banks in Hong Kong enjoy a monopoly over arranging take-overs, to the exclusion of stockbrokers. I preferred the opinion of Mr Wigan, and his successor, Mr Mallows, who has considerable experience in international stockbroking, that there is an area of overlap between merchant banks and stockbroking houses when it comes to organizing take-overs of publicly listed companies.

170. The spheres within which stockbroking firms and merchant banks, respectively, operate are helpfully and, in my view, accurately, described by Mr Wigan in the paragraphs of his Witness Statement from which I now quote:

"48. The description 'stockbroker' reflects the strictly agency role which traditionally was undertaken in the stock markets by the broker who arranged transactions between buyers and sellers and it is true that the main business of a stockbroker is to act in share transactions and to earn a commission for doing so. A stockbroker's clients include individual investors and institutional investors such as corporations, unit trusts, mutual funds, pension funds and other trust funds. Corporate clients whose shares are listed will often have contacts with perhaps several brokers as they will each provide the company with information about the state of the market in the company's shares. As a result of that, stockbrokers often develop a close relationship with directors of corporate clients and they may be frequently asked to give advice. A stockbroker is able to give advice to clients on a variety of matters. For example, if a client wished to acquire a stake in a company a stockbroker will advise on the nature of the market in that stock. This information might include how much of the stock is publicly listed, whether there are any sizable stakes in the company, the liquidity of the market etc. Stockbrokers also have analysts who review companies' performance and recommend stocks to buy and to sell. Stockbrokers, therefore, have a lot of information about listed companies and how they are likely to perform in the future and whether their shares are overpriced or undervalued.

49. The description 'merchant bank' is not capable of clear definition. It has its origins in the development by merchants of the provision of finance facilities to facilitate trade with the merchant. The description originated in London, where it is till commonly used, and spread to other centres where London merchant banks opened offices, for example Hong Kong or Singapore. As a general rule, a merchant banker covers a broader spectrum in the financial market than a stockbroker as it is involved with both publicly listed and private companies. However, in Hong Kong transactions involving listed shares form the bulk of their work. A Hong Kong merchant bank would advise its clients on the raising of capital on the stock market and would arrange access to local and international debt markets. The merchant bank would expect to have a close relationship with its corporate clients and to advise them on a whole range of matters for which it would receive a fee. In the United States similar organisations are described as 'investment banks'. Their activities would encompass most of those provided by 'merchant bank' though, in addition, they may expose more of their own capital to investment risk.

50. In recent years stockbrokers have become known as 'securities houses' recognising that they frequently now deal with their clients and the market as principals, as opposed to acting merely as agents, and are much involved in the issuance of securities both as sponsors and underwriters. It would not now be at all unusual for an 'investment bank' or 'merchant bank' to encompass a comprehensive 'stockbroking' capability or a 'securities house' to be able to provide a full range of 'merchant banking' or 'investment banking' services."

171. I also accepted Mr Mallow's evidence to the effect that, on account of the contacts they build up, the general intelligence information they accumulate from their day to day activities, and their research facilities, stockbroking firms can be well placed to take charge of a take-over operation in respect of a listed company's stock.

172. Moreover, I accepted what Mr Wigan and Mr Mallows said to the effect that, in the same way that, for the purposes of a takeover, a merchant bank can make use of stockbrokers, accountants, lawyers or other experts, either by employing them permanently or on an ad hoc basis, so can a stockbroker in the same way make use of merchant bankers plus the same array of other experts. That is what happens in other sophisticated markets, and there is no reason why Hong Kong should be any different, bearing in mind, in particular, the large number of major international brokers having operations world wide in many different markets, with seats on the Hong Kong Stock Exchange.

173. Mr Arthur Lai clearly took pride in having established branches of the Plaintiff in several different countries, so that it did not sit well with his internationalist outlook to argue that Hong Kong stockbrokers were too provincial to take charge of a take-over.

174. From what I learnt about the Plaintiff, I am satisfied it was ready, willing and able to conduct a take-over operation for clients, if given the opportunity.

175. Besides the merchant bank/stockbroker dichotomy for which Mr Arthur Lai argued in the takeover context, he also sought to impose a rigid classification of entrepreneurial, and non-entrepreneurial on businesses.

176. According to Mr Lai's way of thinking, he was an entrepreneur whereas the Plaintiff was not. From there, he went on to argue that it was beyond the scope of the Plaintiff's business to undertake an activity such as organizing a takeover which required considerable entrepreneurial skill.

177. Entrepreneurship is, I think, quite clearly a difference of degree, not kind. There was nothing about the Plaintiff's business which proscribed it from entrepreneurial activities. In fact all businesses are to some extent entrepreneurial : that is what business is all about.

178. With little doubt, Mr Arthur Lai was the company official with the highest aptitude for entrepreneurship, working for the Plaintiff, but that did not put his work requiring that quality outside the scope of the Plaintiff's business. As part of a general duty of good faith towards his company, every company official is expected to use his entrepreneurial skill, along with any other skill he possesses, in reasonable furtherance of the employer's business. Such furtherance includes taking steps to expand the business.

179. In my judgment, the nature and scope of the Plaintiff's business was such as to include the arranging of a takeover within its ambit. If the Plaintiff, through its officers, including directors, brings the parties to a take-over together, the Plaintiff will be entitled to all introduction fees success fees or any other sorts of fees the parties agree with such officers they are willing to pay.

180. Even if Mr Arthur Lai had been right in his contention that the arranging of a take-over was outside the ambit of the Plaintiff's business it would have availed him nothing in his attempt to retain the personal commission paid by Bond Holdings and Tomson Pacific, since it came his way by virtue of his being a director of the Plaintiff : See Regal (Hastings) Ltd. v.Gulliver [1970]2 A.C.134.

Finding On Claims For Breach of Fiduciary Duty Against Mr Arthur Lai In Respect Of Commission of $A2 Million From Bond Holdings and $26.4 Million From Tomson Pacific

181. All the ingredients of this cause of action have been established to my satisfaction in respect of both amounts, so I find in the Plaintiff's favour against Mr Arthur Lai for those sums of $A2 million and HK$26.4 million.

Conspiracy Alleged Against Mr Arthur Lai

182. As something of a makeweight, it was pleaded that in diverting the commission of $A2 million and HK$26.4 million in his own direction, Mr Arthur Lai conspired with Mr Raymond Lai, Mr Peter Mou, Mandarin and Wealthcorp and persons unknown, to injure the Plaintiff by unlawful means.

183. There can be no doubt that, as mastermind, Mr Arthur Lai combined with the two individuals named and the two named companies, which I am satisfied were his mere nominees, with the intention of injuring the Plaintiff by depriving it of the two lots of commission which it might otherwise have earnt for itself.

184. Certainly, in respect of the $A2 million from Bond Holdings, I see no reason to doubt that Mr Lucas would have been equally happy paying that money to the Plaintiff as to Mr Arthur Lai/Wealthcorp. Mr Lucas was completely above-board on the evidence I have seen, and, as there is no suggestion he might be seeking any special favours from Mr Arthur Lai of a type which the Plaintiff itself might not have been willing to grant, I think he would in all probability have been willing to pay the Plaintiff the full $A2 million. Once Bond Holdings paid the $A2 million at the end of June 1990, it had nothing more to hope or fear.

185. Whether Mr David Tong for Tomson Pacific would have been willing to pay the Plaintiff the full $26.4 million he paid Mr Arthur Lai/Mandarin is not clear on the evidence, but I see no reason to doubt he would have been willing to pay the Plaintiff something for making the introduction to Bond Holdings. After paying Mr Arthur Lai/Mandarin the $26.4 million on 22nd June 1990, Tomson Pacific still did have hopes and fears since the failure of the placing exercise could be very expensive for it. Whether Mr Arthur Lai was expected to exert himself extraordinarily in relation to the placing on Tomson Pacific's behalf is not clear on the evidence, but, as a matter of fact, I am satisfied he did go to special lengths to ensure the placement was a success by taking the final 8,050,494 unplaced shares for himself, through his nominee, Mandarin. Whether Mr Arthur Lai did that for the sake of his own general reputation for achieving successful placements, or whether he did it because he felt Tomson Pacific expected it of him after paying him this huge sum of $26.4 million cannot be answered on the evidence before me.

186. As to the element of an unlawful act required to establish conspiracy, there is already my finding of Mr Arthur Lai's breach of fiduciary duty.

187. All the necessary ingredients to establish conspiracy against Mr Arthur Lai are present :-

(i) agreement between himself and others to commit an unlawful act;

(ii) commission of that unlawful act with intention to injure; and

(iii) loss to the Plaintiff.

The Placement of 8,050,494 Bond International Share with Mandarin

188. On the last date for placement, namely, 25th July 1990, 8,050,494 Bond International shares, being the balance of the placement shares, were placed with Mandarin.

189. By 1st August 1990 all those shares had been sold off by Mandarin to yield a profit of HK$1,264,443.

190. It was Mr Arthur Lai who took the initiative in getting those shares placed with Mandarin when, as a director of the Plaintiff, he learnt those shares remained unplaced.

191. If, as the Plaintiff contends, Mandarin was Mr Arthur Lai's nominee at the time those shares were placed with it, Mandarin and Mr Arthur Lai will be liable to account to the Plaintiff for the profit of HK$1,264,443 made on re-sale, since Mr Arthur Lai will, for his own personal benefit, have taken advantage of the confidential information that came his way as a director of the Plaintiff that the 8,050,494 shares were available for private placement.

192. In the case of this profit of $1,264,443, Mr Arthur Lai has not sought to raise a defence of informed consent from the Plaintiff to his taking the shares and making a profit.

193. This time, his line of defence took the form of disputing that Mandarin was still his nominee by the time - 25th July 1990 - the placement of those 8,050,494 shares occurred.

194. According to what Mr Arthur Lai told the court, the beneficial ownership of Mandarin had passed from Mr Arthur Lai by 25th July 1990, and the request to have those share placed with Mandarin came from that new owner - Mr Patrick Poon.

195. It has not always been Mr Arthur Lai's contention that Mr Patrick Poon was the beneficial owner of Mandarin at the time of that placement.

196. When Mr Arthur Lai first gave evidence before the Inspector on 8th February 1993, he stated unequivocally, "As a matter of fact I remember, I personally subscribed a few million shares, just to make up the final number, I remember." That answer comes from the Inspector's transcript at page 212:-

"Q. We understand that but how were the individual allocations decided, assuming that there was an over-subscription?

A. I don't think there was an over-subscription. Initially there was an overwhelming response but towards the end it was really quite close to the exact figure. As a matter of fact I remember, I personally subscribed a few million shares, just to make up the final number, I remember. I don't know if I am correct because I don't remember.

Q. Well it appears that Mandarin Development subscribed to just over eight million and then --

A. I don't think I have subscribed to so much. I think initially they said there was eight million and asked if I wanted to, but at the end of the day there were some more takers, you know, who take out private clients or whatever, smaller clients. I only said I would take it up if you are stuck with it and I think towards the end I took up much less than that, I don't know, you would remember more than I because I don't have anything to go back on any more. Anyway, go on with your names, I will try to see if I can help you."

Then at page 224:-

"A. ........... I only know about Mandarin because they asked me to put in the filler myself, and I said all right I'll put in the filler - that's why it's an odd number, maybe - but I said if you have anyone taking it up don't let me get stuck in this, you know. Well not stuck, anyway, I mean I had no reason to invest in that."

197. Then, from out of the blue, on 1st April 1993, Mr Arthur Lai was served with the writ, together with the Mareva injunction, in the present proceedings, based in important respects on what the Plaintiff knew Mr Arthur Lai had told the Inspector in February 1993.

198. Since the writ, Mr Arthur Lai has come up with a version in which, instead of Mr Arthur Lai personally subscribing, there is now, "This friend of mine, you know, who could be interested". The transcript of what Mr Arthur Lai told the Inspector on 21st July 1993 is as follows :

"A. Well I tell you, this is really the irony of the whole thing. The reason why Mandarin took it up is because at that moment, the last minute, they said they don't want the eight million for whatever reason. So he said, anyone can help? So I said, alright I'll help. I am only trying to work as a filler. This friend of mine, you know, who could be interested and now I'm suffering on this at this moment. Anyway ...."

199. "This friend of mine" turns out to be Mr Patrick Poon. Mr Arthur Lai asks the court to believe that he made an oral gift of Mandarin to Mr Patrick Poon in June 1990, and then got the Plaintiff to place the 8,050,494 Bond International shares with Mandarin by way of sale on 25th July 1990.

200. The belated revelation by Mr Arthur Lai, post-writ, that Mr Patrick Poon had become the beneficial owner of Mandarin by 25th July 1990 is nothing better than a cock and bull story. As a pathetic invention it is rivalled only by Mr Arthur Lai's explanation of why Mr Patrick Poon could not come over from Taiwan to give evidence : his wife had given birth recently and was too ill for him to leave her.

201. An affirmation from Mr Patrick Poon which Mr Arthur Lai sought to put into evidence did not in fact assist Mr Arthur Lai's case since in the affirmation Mr Patrick Poon refers to having become owner of Mandarin in September 1990.

202. Mr Raymond Lai, who, before the Inspector first time, in January 1993, claimed not to know who owned or controlled Mandarin purported to remember, next time before the Inspector, in July 1993, that Mandarin had always been Mr Patrick Poon's company.

203. I have no doubt that Mr Arthur Lai and Mr Raymond Lai collaborated to invent a role for Mr Patrick Poon as beneficial owner of Mandarin as at 25th July 1990 in a desperate endeavour to defeat the Plaintiff's claim in relation to the placement.

204. Besides carrying the stigma of recent invention, Mr Arthur Lai's and Mr Raymond Lai's account of Mr Patrick Poon's having become beneficial owner of Mandarin by July 1990 is inherently improbable for other reasons.

205. It made no sense for Mr Arthur Lai to give Mandarin to Mr Patrick Poon when, included in its assets, was the $A2 million commission from Bond Holdings, none of which was due to be shared with Mr Patrick Poon, and the HK$26.4 million commission from Tomson Pacific, of which Mr Patrick Poon had only been promised 40%. After Mandarin opened an account with the Plaintiff on 24th July 1990, Mr Arthur Lai admits buying some Rivera shares through that account - conduct hardly consistent with his having given Mandarin away.

206. Again on 10th September 1990, Mr Arthur Lai put 10 million Bond International (subsequently re-named World Trade Centre) shares into that account. Those he contends he held to the order of Cathay General Inc. ("Cathay"). Even if what he says about the beneficial ownership of those 10 million World Trade Centre shares belonging to Cathay is correct - And I am still completely open-minded on that since Cathay which has got itself joined as a party to the present suit has yet to be heard - it is odd that he should park them in Mandarin's account if he was not the beneficial owner of Mandarin.

207. True, the one and only issued share in Mandarin was transferred from Mr Arthur Lai's nominee Mr David Tang to Mr Patrick Poon on 2nd September 1990. Mr David Tang has, nonetheless, continued as a director of Mandarin so that, even after 2nd September 1990, it might well be that Mr Arthur Lai continues to control Mandarin. That, however, is a collateral question the court need not pursue for present purposes.

208. It was argued by Mr Arthur Lai that, as ChinTung Securities conducted the placement on a "best endeavour" basis, involving no risk of financial loss to ChinTung Securities or himself, it was unlikely that he would want to place the residual 8,050,494 Bond International shares with Mandarin if it were his nominee, since any incentive to do so was lacking.

209. There was an incentive, though : the prospect of future private commissions in future placements. ChinTung Securities handled something like 80% of all placements coming to market. If the Bond International placement did not succeed, and the underwriters had to make a general offer, the prospects for future personal commissions for Mr Arthur Lai would be blighted.

210. A further reason advanced by Mr Arthur Lai against Mandarin having been his nominee as at 25th July 1990 was the circumstance it could create complications for Mr David Tong when called upon to certify the appropriate Form of Acknowledgement for the SFC to the effect that Mandarin was an independent placee. According to Mr Arthur Lai, Mr David Tong, who, on behalf of Tomson Pacific, had agreed to pay Mandarin $26.4 million commission when it was Mr Arthur Lai's nominee, would not be willing to sign a Form of Acknowledgement for Mandarin in respect of a placement unless Mandarin were under new ownership by the time of the placement. Otherwise, according to Mr Arthur Lai, Mr David Tong would run the risk of precipitating a general offer.

211. The fallacy in Mr Arthur Lai's argument is the assumption that Mr David Tong was called upon to sign a Form of Acknowledgement in respect of Mandarin. Moreover, I regard it as highly unlikely that Mr David Tong or anyone else in Tomson Pacific knew anything about Mandarin being a placee before the Inspector's Investigation.

212. The way things were arranged by Mr Arthur Lai, Mr Raymond Lai and Mr Peter Mou, in all probability, so I am satisfied, was that no Form of Acknowledgement in the name of Mandarin was ever submitted to Mr David Tong or the SFC.

213. The Form of Acknowledgement approved by the Chairman of the Takeovers and Mergers Committee does not specify the number of shares it covers.

214. In the present case, Mr David Tong signed a Form of Acknowledgement for Hauxton. That was sent by Mr Raymond Lai to the SFC on or about 23rd July 1990, with what purported to be a final Placee List, showing 68,050,494 shares placed with Hauxton.

215. The reality was only 60 million shares were ever placed with Hauxton, and the residual 8,050,494 shares were placed with Mandarin on 25th July 1990.

216. There was no need for Mr David Tong to know that, and I greatly doubt that he did know.

217. Common sense suggests that Mr Arthur Lai would not have wanted Mr David Tong to know the embarrassing situation Mr Arthur Lai had created by employing Mandarin to receive a placement.

218. I am satisfied that Mandarin continued to be Mr Arthur Lai's nominee at the time the 8,050,595 Bond International shares were placed with it, and he is liable to the Plaintiff on the basis of breach of fiduciary duty for the profit of $1,264,443 made by Mandarin on the sale of those shares.

Mardarin and Wealthcorp :

Knowing Receipt and Knowing Assistance

219. Causes of action of this type are variants of breach of fiduciary duty.

220. An action for knowing receipt will lie against an individual who has received the proceeds of a breach of fiduciary duty with knowledge of such breach. Fraud or dishonesty is not a necessary ingredient.

221. By contrast, an action for knowing assistance lies against a party who, without receiving the proceeds, has knowingly aided and abetted a fiduciary in committing a dishonest breach of his duties.

222. Because of the convoluted and dishonest way in which he chose to conduct his affairs, Mr Arthur Lai has managed to bring about a situation where Mandarin, and Wealthcorp, as his nominees, are each liable for the $A2 million commission paid by Bond Holdings as well as the $26.4 million paid by Tomson Pacific.

223. Mandarin, a Liberian registered company with just the one shareholder, Mr David Tong, who was Mr Arthur Lai's nominee, received the proceeds of the cheque for $26.4 million from Tomson Pacific as foreshadowed in the latter's letter of 31st May, 1990 to Mandarin, plus a cheque for $A2 million from Bond Holdings, although the original arrangement, set down in Bond Holdings' letter of 20th April, 1990, was to pay the $A2 million to Wealthcorp. Mandarin was as much Mr Arthur Lai's alter ego as it is possible for a company to be. His knowledge was Mandarin's knowledge. See Mandarin Resources v. David Cheng HCA No.A7375 of 1986. The Plaintiff has an open and shut case of knowing receipt against Mandarin for both the $A2 million and the $26.4 million.

224. On the receipt aspect, the $26.4 million was used to fund the 33 million Tomson Pacific shares which finished up in Tomson Pacific's account with Mandarin. The $A2 million went into Mandarin's account with UBS (See Bundle 1 at page 148 and Bundle 14 at page 13), and, according to Mr Arthur Lai who pretended not to know what happened to it when withdrawn on 16th August 1990, has since disappeared in nubibus. Likewise, for knowing assistance against Mandarin. Mr Arthur Lai's taking personal commission from Bond Holdings and Tomson Pacific was, by any standard, dishonest from start to finish. There is no need to catalogue the tricks he and his minions, Mr Raymond Lai and Mr Peter Mou got up to. It is sufficient to recall the fake letter of 16th May 1990 supposedly from the Plaintiff to Bond Holdings, and Mr Arthur Lai's deliberately doing the very thing the SFC had so earnestly tried to prevent when he, very much a "related party", rigged the result of the placement by taking the residual 8,050,494 Bond International shares through Mandarin.

225. How Wealthcorp came to receive and knowingly assist in the disposal of the $26.4 million from Mandarin was that on the strength of instructions on behalf of Mandarin from Mr Arthur Lai's nominees, Mr Raymond Lai and Mr Peter Mou, to UBS in a letter dated 28th June 1990, the proceeds of Tomson Pacific's cheque for $26.4 million were used to fund a cashier's order in the same amount in favour of Wealthcorp.

226. On or about 29th June 1990, the proceeds of that cashier's order were credited to Wealthcorp's account with Security Pacific Asian Bank. At what must have been the instigation of Mr Arthur Lai, or his nominees, Mr Raymond Lai and Mr Peter Mou, a cheque for $26.4 million was issued by Wealthcorp on or about 29th June 1990 in favour of Tomson Pacific to pay for the 33 million shares in Tomson Pacific which were deposited in Mandarin's account with the Plaintiff on or about 25th July 1990.

227. Although the one and only share issued by Wealthcorp, a Hong Kong company, was owned by Mr Arthur Lai's wife, Yvonne, she took a completely passive role while Mr Arthur Lai operated and controlled the company through his nominees. Because Wealthcorp was, in effect, Mr Arthur Lai's alter ego, it was fixed with his guilty knowledge that Wealthcorp was part of his dishonest scheme to keep for himself commission which he had arranged to be paid to himself through nominees in knowing breach of his duties as a fiduciary towards the Plaintiff.

228. The $A2 million destined for Wealthcorp under Bond Holdings' letter of 20th April 1990 in fact went to Mandarin. The only reasonable inference is that the money was paid to Mandarin on Wealthcorp's orders as Wealthcorp's nominee. The position in law is the same as if the money had been paid to Wealthcorp, which I am satisfied, in such circumstances, is liable for both knowing receipt and knowing assistance.

229. In respect of Mandarin's profit of $1,264,443 in respect of the placement of the 8,050,494 Bond International shares, Mandarin, as Mr Arthur Lai's nominee, is liable in respect of both knowing receipt and knowing assistance.

Conspiracy : Mandarin and Wealthcorp

230. As Mr Arthur Lai's alter ego, Mandarin and Wealthcorp are liable for the same conspiracy as Mr Arthur Lai in relation to the $26.4 million and $A2 million private commissions.

Miscellaneous

(a) Lost Placement File

231. One of the Plaintiff's two placement files in the custody of Mr Gary Wong went missing in or around May 1993.

232. In March 1993, that file, along with the Plaintiff's other relevant files was, I am satisfied, thoroughly scoured by the Plaintiff's solicitors for documents tending to advance or damage the Plaintiff's case on the issues embodied in the present proceedings launched on 1st April 1993. Copies of any such documents were kept by the Plaintiff's solicitors, and, in due course, made available to Mr Arthur Lai and the other Defendants on discovery.

233. As the opening salvo in this litigation was to be a Mareva injunction, I do not doubt that the Plaintiff's solicitors, who enjoy a high reputation in the field of commercial litigation, would have shown all due diligence in their review of the Plaintiff's documents so as to forestall any subsequent application from the Defendants to discharge the Mareva for want of full disclosure to the court at the ex parte stage.

234. The court is displeased that the file has been lost, but is satisfied that the possibility of the Defendants having suffered any disadvantage from this is remote in the extreme.

235. Because the Plaintiff's case is so overwhelming against Mr Arthur Lai, he has had to clutch at such straws as he can in trying to defend himself. Opportunistically, Mr Arthur Lai tried to make out that the unrevealed content of the lost file was of crucial importance to his showing how he hid nothing from his co-directors.

236. I do not think for one moment the missing file would have contained, as Mr Arthur Lai suggests, a Form of Acknowledgement in relation to Mandarin being an independent placee of the residual 8,050,494 Bond International shares, since the relevance of such a document would have been immediately apparent to the Plaintiff's solicitors and it is unthinkable it would not have been copied, to be available on discovery.

(b) Practice Manual

237. It is not without irony that Mr Arthur Lai, of all people, should try to take the point that there could not have been anything irregular in the way Mr Peter Mou opened a margin account for Mandarin with the Plaintiff on 24th July 1990 in respect of the placement of the 8,050,494 shares, since it would have been in breach of the Plaintiff's Practice Manual, which required proper documentation from a prospective customer.

238. Not following proper procedures is what first set Mr Arthur Lai's career on a downward spiral in 1987 when the aftermath of Black Monday brought to light that, through ChinTung Futures, he had been trading Hang Seng Index Futures on a margin of 8% when the figure required by the regulating authority was 10%. That resulted in a judgment, including interest and costs, in excess of $100 million against Mr Arthur Lai in favour of ChinTung Futures and its creditors for negligence.

239. Mr Arthur Lai got himself into trouble again when the Hong Kong Stock Market went steeply into reverse after word reached Hong Kong of the chilling events which took place in Tienanmen Square on 4th June 1989. The market's sudden collapse exposed Mr Arthur Lai's to be trading on the Plaintiff's account to the extent of $10 million when the limit imposed on him was $5 million.

240. It would have been perfectly in character for Mr Arthur Lai to get Mr Peter Mou to open a margin account for Mandarin on 24th July 1990 without any deposit or proper documentation, contrary to the provisions of the Practice Manual, and I am satisfied that is what in fact happened.

241. There is a witness statement from Mr Freddie Kwan, the Plaintiff's Manager of Client Services at the material time, relied on by Mr Arthur Lai. That statement is to the effect that all margin accounts had to be approved by the Plaintiff's Finance and Administration department, and any unauthorised dealing would be closed out immediately, unless approved by the Finance Director who was Mr Patrick Yeung at the material time. There was similar evidence from Thomas Mak and Philip Pang, who had both been employees of the Plaintiff.

242. What Mr Freddie Kwan and the others described was, so I am satisfied, the theoretical ideal which the Plaintiff's salesmen were supposed to follow, but I am satisfied, too, from the evidence of Mr Patrick Yeung and Mr Gary Wong that salesmen high enough in the Plaintiff's hierarchy, such as Mr Raymond Lai and Mr Peter Mou, could get away with disregarding the Practice Manual - at least for a while - and would present the Finance Director with a fait accompli in the form of a margin account opened without the approval of himself or members of the Plaintiff's Credit Committee authorised to grant the necessary approval. I accepted what Mr Patrick Yeung told the court about the dilemma he then faced, and how as a matter of practical business he would not automatically close out such an account, but exercise his discretion, basing himself on what the salesmen represented to him about the customer.

243. I accepted the evidence of Mr Patrick Yeung and Mr Gary Wong that, on account of limitations in the Plaintiff's computerised system at the material time, they were powerless to prevent margin accounts being opened without proper approval.

244. A point made against Mr Patrick Yeung and Mr Gary Wong by Mr Arthur Lai was that they both must have known of the placement to Mandarin at or about the time it happened on 25th July 1990. I accept that they probably did know at or about that time, but such knowledge on their part does nothing to assist the defence case, since, I am satisfied, they did not know or have any ground to suspect that Mandarin might be owned and controlled by Mr Arthur Lai.

(c) Section 358 of the Companies Ordinance

245. This cannot be prayed in aid by Mr Arthur Lai to excuse his breaches of duty to the Plaintiff, since, for reasons already expressed, the court does not consider he has acted honestly.

Credibility

246. I have made comments on the credibility of several of the witnesses in the course of this judgment.

247. In relation to Mr Arthur Lai and Mr Raymond Lai, the two main witnesses for the defence, I found neither of them worthy of belief on account of the inherent improbability of their version of what happened, and their manner of telling it.

248. On the other hand, I found the Plaintiff's main witnesses, Mr Wigan, Mr Patrick Yeung and Mr Gary Wong all wholly credible. Mr Arthur Lai complained that Mr Gary Wong had a purpose of his own to serve, since the Plaintiff has withheld his 1993 bonus, thus putting Mr Gary Wong under pressure to ingratiate himself with the Plaintiff by giving evidence only favourable to the Plaintiff. In fact, Mr Gary Wong's evidence before me was wholly consistent with the affirmation he made in support of the Plaintiff's application for its Mareva Injunction in late March 1993, at which time there was no suggestion of any particular inducement operating on his mind.

Conclusion

249. In view of the foregoing, I enter judgment for the Plaintiff on all of its claims.

250. This is a judgment handed down pursuant to Order 42, rule 5B.

Representation:

Mr Ronny Tong, Q.C. leading Mr Paul Shieh, inst'd. by M/s Freshfrields, for Plaintiff

Mr Jonathan Harris, inst'd by M/s Haldane Midgely and Booth, for 2nd and 7th Defendants

Mr Arthur Lai, 1st Defendant, in Person

1993, No. A2757

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________________

____________________

Dates of hearing : 23rd, 26th and 27th April 1993

____________________

JUDGMENT

____________________

1. This is an application by summons dated 8/4/93 taken out on behalf of the 3rd, 4th and 8th defendants for discharge of the ex parte Order of 1/4/93 made in favour of the plaintiff by Deputy Judge Evans and continued by the Order of 15/4/93 of Deputy Judge Yam. Deputy Judge Yam's Order was made inter partes with reference to, inter alios, these defendants' application for discharge. Mr. Ronny Tong, Q.C. for the plaintiff fairly agreed that he was not in a position to raise any argument on issue estoppel based on Deputy Judge Yam's Order or that the present defendants were in any way barred from making this application. For the purpose of this judgment, I do not differentiate between the two Orders, for the latter Order was but a continuation of the first one apparently without any attempt to deal with or dispose of this application.

2. From the Statement of Claim, it can be seen that the plaintiff's claims against the eight defendants are briefly as follows. D1 and D2 are brothers. D 1, D2 and D3 were at all material times directors of the plaintiff. D4 is and was a nominee of D3 in respect of his property and she is joined as a defendant on that basis. She holds a shares trading account No. M0410 with the plaintiff as nominee for D3. D5 ("Mandarin") is and was a nominee of D1, D2 and/or D3, and holds a shares trading account with the plaintiff as such nominee. D6 ("Wealthcorp") is and was similarly such a nominee. D7 is and was a nominee of D2 and is joined as a defendant on that basis. D8 is and was a nominee of D3 in respect of his property and is joined as a defendant on that basis. D8 holds the legal title to the property which D3 now says to be his and D4's matrimonial home. On about 16/5/90, Tomson Pacific Limited ("Tomson") agreed to purchase from Bond Corporation hlternational Holdings Limited ("Bond Holdings") 461,564,910 ordinary shares in the capital of Bond Corporation International Limited ("Bond"). Sawbridge Limited ("Sawbridge") agreed to purchase another 419,950,494 Bond shares ("the Remaining Shares") from Bonding Holding. The plaintiff agreed with Sawbridge to act as brokers in the placement of the Remaining Shares and Tomson agreed with Sawbridge to act as underwriter in that agreement. D1, D2 and/or D3 received a secret commission or payment in the sum of $26,400,000 from Tomson in relation to the shares bought by Tomson and the payment was made by Tomson to Mandarin as nominee for D1, D2 and/or D3. D1, D2 and/or D3 also received a secret commission or payment in the sum of$12,000,000 from Bond Holdings in relation to the sale of the shares to Tomson, which was paid to Wealthcorp as nominee for D1, D2 and/or D3 upon completion of the placement of the Remaining Shares. Further, despite a memorandum dated 1/5/90 signed by Christopher Wigan on behalf of Standard Chartered Asia Limited (the plaintiff's holding company) and the plaintiff to all members of the plaintiff's staff, prohibiting them from engaging in person or house dealings of shares and warrants of Bond until further notice, D1, D2 and/or D3 caused 8,050,494 shares in Bond to be placed with Mandarin as their nominee, which gave rise to a profit of $1,264,443.94. The plaintiff also claims against D1 D2, D3, Mandarin, Wealthcorp and each of them for conspiracy to injure the plaintiff by unlawful means.

3. Just to recapitulate the plaintiff's claims against the present defendants, the claim against D3 is that he as a director and employee of the plaintiff was in breach of his fiduciary duties and trust towards the plaintiff in making secret profits out of the said transactions complained of. The claim against D4 and D8 is purely based on the allegation that these two defendants are and were at all material times the nominees of D3.

4. Deputy Judge Evan's Order of 1/4/93 was made against all eight defendants. It consists of, inter alia, a Mareva Injunction and an Order to file affidavits disclosing assets. The relevant issues before the Deputy Judge were, as far as the present defendants are concerned, as follows:

Issue (1): whether there was a good arguable case of the plaintiff's claim against D3, i.e., whether there were breaches of fiduciary duty or trust by D3 as a director and employee of the plaintiff;

Issue (2): whether there were grounds for thinking that D3, D4 and/or D8 had assets in Hong Kong;

Issue (3): whether D4 and/or D8 were the nominees of D3 in holding assets which was the only reason for which they were joined as defendants; and the issue can be narrowed to whether the assets shown to be in the names ofD4 and/or D8 belonged to D3;

Issue (4): whether there were grounds for believing that there was a real risk that D3, D4 and/or D8 would dissipate assets to frustrate judgment.

5. It appears to me that there is no dispute, nor can there be in view of the evidence, over Issue (2). Mr. Robert Tang, Q.C. for the three defendants has conceded for the purpose of this application that the plaintiff has a good arguable case against D3 for breaches of fiduciary duty and trust, i.e., Issue (1), but submitted that various matters which had not been disclosed to the Deputy Judge are material to Issues (1), (3) and (4) and that by reason of the non-disclosure, the Order should be discharged. Issues (3) and (4) are, of course, hotly disputed.

6. On the law concerning material non-disclosure, there seems to be no dispute that an applicant for an ex parte injunction must make full and frank disclosure of all relevant matters, including those against his application.

7. The law is succinctly summarised by Ralph Gibson LJ in Brink's Mat Ltd v. Elcombe & Ors. [1988] 1 WLR 1350, CA. At 1356G to 1357F, the learned Judge said:

"In considering whether there has been relevant non-disclosure and what consequences the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.

(1) The duty of the applicant is to make a 'full and fair disclosure of all the material facts': see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486, 514, per Scrutton LJ.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy MR at p.504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and BrowneWilkinson l in Thermax Ltd v. Schott Industrial Glass Ltd. [1981] FSR 289,295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have, known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch. 38; and ( c) the degree of legitimate urgency and the time available for the making of the inquiries: see per Slade LJ in Bank Mellat v. Nikpour [1985] FSR 87, 92-93.

(5) If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure H. is deprived of any advantage he may have derived by that breach of duty': see per Donaldson LJ in Bank Mellat v. Nikpour, at p.91, citing Warrington LJ in the Kensington Income Tax Commissioners' case [1917] 1 KB 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case be presented.

(7) Finally, it 'is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded': per Lord Denning MR in Bank Mellat v. Nikpour [1985] FSR 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.

'when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ... a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed': per Glidewell LJ in Lloyds Bowmaker Ltd v. Britannia Arrow Holdings Plc, ante, pp.1343H-1344A."

8. What is material to be disclosed on an ex parte application was dealt with in Citibank NA v. Express Ship Management Services Ltd. [1987] HKLR 1184, CA at 1190D, where it was held that the court was not concerned with whether the matters not disclosed would if they had been disclosed have caused it to refuse to grant the ex parte order; and the test was whether the court should have these matters in the weighing scales.

9. The applicant must make a full and frank disclosure of all relevant matters, including those against his application. In O'Regan and Ors v. Iambic Productions Ltd [1989] New Law Journal 1378, at p.1378, Sir Peter Pain said:

"It is clearly the duty of counsel and of the solicitor to point out to the judge any points which are to their client's disadvantage, which the judge should take into account in considering whether or not to grant the injunction. It is difficult for a judge upon an ex parte injunction at short notice to grasp all relevant points .... "

10. The extent of the duty to disclose is also dealt with by Gee on Mareva Injunctions and Anton Piller Relief, 2nd Ed., where at p.81, the learned author states:

"It may not be a sufficient answer to an allegation of non-disclosure for a plaintiff to say that the relevant information giving rise to the defence was contained in an exhibit, though not referred to in the body of the plaintiff's affidavit in the context of a possible defence. Exhibits to such affidavits are often voluminous, and since ex parte applications for Mareva or Anton Piller relief are often dealt with comparatively shortly and the judge may not have had the opportunity of considering the papers in detail before the hearing, the applicant has the responsibility of ensuring that all relevant points are presented clearly and distinctly. Thus in Siporex Trade SA v. Comdel Commodities Ltd [1986] 2 Lloyds Rep 428 at p.437, Bingham J said that the applicant must 'identify the crucial points for and against the application, and not rely on the mere exhibiting of numerous documents'. Any contractual provision (e.g. an exclusion clause) which is relevant to the court's consideration of the application should be referred to and preferably set out in the body of the affidavit. It will not usually be sufficient simply to exhibit the entire contract.

Accordingly, it is of the utmost importance that the plaintiff carefully considers the nature of the cause of action and the facts on which it is based before formulating the application. A thorough check should be made to ensure that all defences actually raised by the defendant are identified and fairly summarised in the affidavit."

11. Mr. Tong has led me through some of the significant evidence against D3 for his knowledge and involvements in the transactions from which D1, D2 and/or D3 obtained the profits which the plaintiff claims belong to it. Although Mr. Tang has conceded that the plaintiff has a good arguable claim against D3, he nevertheless submits that even on Issue (1), there was material non-disclosure which must be considered.

12. An affidavit of Gary Wong, a director of the plaintiff, sworn on 1/4/93, was before Deputy Judge Evans in support of the application for Mareva Injunction. That affidavit consisting of 30 pages with exhibits of not less than 400 pages was the only evidence before the Deputy Judge. Gary Wong deposed to the fact that D3 was a close friend and colleague of D1. Mandarin applied to open a margin dealing account with the plaintiff in July 1990 ("Mandarin's account") and the first transaction was carried out on 24/7/90. D3 was the account executive of Mandarin's account. In regard to the alleged secret commissions paid to Wealthcorp and Mandarin, Gary Wong mentioned two letters which were exhibited to his affidavit. A letter dated 16/5/90 on the letter paper of ChinTung Limited (the plaintiff's name at the material times) addressed to Bond Holdings purported to confirm that the plaintiff was aware of a fee of $12,000,000 to be paid by Bond Holding to Wealthcorp for services rendered in respect of the introduction of Tomson to Bond Holding leading to the sale of shares. This letter was signed by D2 and D3. Another letter dated 31/5/90 on Tomson's letter paper and addressed to Mandarin stated that Tomson agreed to pay Mandarin a cash commission of $26,400,000 seven days before the completion date of Tomson's purchase of the Bond shares. Mandarin's acceptance was signed by D3 on its behalf.

13. Regarding the placement of Bond shares with Mandarin, it was against an express prohibition of the plaintiff contained in the memorandum dated 1/5/90 signed by Wigan on behalf of the plaintiff and circulated to all its staff. This memorandum was exhibited to Gary Wong's affidavit.

14. Gary Wong's affidavit dealt further with D3's involvements in the transactions complained of as well as the dishonest disposition of D3 and the likelihood or real risk of dissipation of assets belonging to him and held for him by his alleged nominees D4 and D8:-

(a) Mandarin, a Liberian company, opened Mandarin's account in July 1990 and the first transaction was carried out on 24/7/90. D3 was the account executive of Mandarin's account. The account opening form was not completed until 8/3/91. As Mandarin was a foreign company, a guarantor was required for the account and this was given by Patrick Poon dated 30/6/90 although Gary Wong believed the plaintiff did not receive the guarantee until June 1991. The statements of Mandarin's account had been sent to an address in Taipei. Instructions for Mandarin's account invariably/normally came from D3 and he accepted deliveries of shares for the account. Even though attempts were made by Patrick Yeung, a director of the plaintiff, to formalise the account opening procedure regarding the account, at credit committee meetings of the plaintiff, D1 and D2 never answered for Mandarin, but D3 always did. D3 however never disclosed the beneficial ownership of the account and stalled attempts to formalise the account. It was thought that D3 was concealing the identity of a Taiwanese beneficiary (for Taiwan foreign exchange control purposes).

(b) Regarding Mandarin's purchase of 8,050,494 Bond shares in the placement that was closed on 25/7/90, Gary Wong produced documents to show that one Hauxton Limited was allocated a total of 68,050,494 shares on 19/7/90. Hauxton's name appeared on various lists compiled by the plaintiff with dates ending on 31/7/90 showing the places and breakdown of the shares placed with each of them. Mandarin's name appeared first in a list dated 25/7/90 where a notation "margin A/C Mandarin" was written against the reference to Hauxton's allocation of 8,050,494 shares. Mandarin's name was only included in a typed list dated 31/7/90. Hauxton started dealing through the plaintiff in September 90 but never formally opened an account or provided the necessary account opening-documentation, and D3 was the account executive and the statements of account were addressed to "Hauxton Ltd, c/o D3".

(c) Neither Patrick Yeung nor Gary Wong had seen the letter dated 16/5/90 signed by D2 and D3 prior to their interview on 9/3/93 with the Inspector appointed on 28/8/92 by the Financial Secretary investigating the affairs of T omson and Bond and since 23/1 0/92 also of Hauxton and Mandarin, and the plaintiff had been unable to locate a copy of this letter in its files.

(d) On 12/3/93, the plaintiff's solicitors were allowed by the Inspector to transcribe a copy of the letter dated 31/5/90 signed by D3.

(e) The Inspector confirmed to the plaintiff's solicitor that both payments of $26.4 million and $12 million (or AUD$ 2 million) were received by Mandarin.

(f) The plaintiff had made inquiries with all the books of minutes of various meetings of ChinTung Limited and ChinTung Holdings Limited and was unable to find any evidence that D1, D2 or D3 made any disclosure of the payments received by or through them or Wealthcorp or Mandarin.

(g) There were various contract notes in which the buyer/seller has been switched between Mandarin and Wealthcorp, showing close connection between them.

(h) D3 was aware of both payments.

15. Pausing here for a moment, there is further evidence before me, which was not available to Deputy Judge Evans, and it is shown in square brackets below.

(i) [All directors of the plaintiff at the material time have been approached and none of them is aware of the payment of $26.4 million.]

(j) [D3 has admitted he signed the two letters dated 16/5/90 and 31/5/90, and explained that he was asked by D1 to do so. He was told by D1 that all the other directors of the plaintiff had agreed to the payments.]

(k) [D3 believed that D1 had some interest in Mandarin.]

(l) D3 was the account executive of D4's dealing account with the plaintiff numbered M0410 ("D4's account").

(m) The account opening documentation describes D4's occupation as "housewife".

(n) D3 applied to the plaintiff for and was granted a loan to D4's account on 7/7/87 (a mistake for 7/7/89), proposed by D3 to be repaid by 24 monthly instalments arranged by direct deduction from his monthly salary from the plaintiff. A total of $444,000 was therefore deducted from D3's salaries.

(O) The plaintiff had in August 1990 written to D3 to propose to deduct his interim bonus from D4's account describing it as "your investment account".

(p) On 7/4/92, $660,839.82 was transferred from D3's own dealing account with the plaintiff ("D3's account") to D4's account.

(q) On 8/4/92, $540,000 was transferred from D3's account to D4's account.

(r) On 15/9/92,48,000 Wai Kee warrants were withdrawn from D3's account and delivered to D4.

(s) On 22/9/92, $600,000 was transferred from D4's account to D3's account.

(t) On 15/1/93, a cheque for $606,150 was drawn on D4's account in favour of Wardley James Capel Limited, the company for whom D3 now worked.

(u) On 21/1/93, a stock withdrawal and delivery form was completed on D4's account, with a remark stating "client will collect above shares this morning by himself".

(v) On 23/2/93, $336,400.17 was transferred from D8's dealing account with the plaintiff ("D8's account") to D4's account, following a request by D3 to transfer the credit balance from D8's account to D4's account. D3 had a beneficial interest in D8. (This last sentence, apparently a comment, must be viewed together with (z) below).

(w) On 4/3/93, a cheque for $1 million from Wardley James Capel for whom D3 worked was paid into D4's account.

(x) There were examples of applications and transactions being switched between D3's and D4's accounts.

(y) The signatory ofD4's account was believed to be D3 although he signed in English D4's name. [This D3 admits]. D4's signatures on documents were in Chinese.

(z) The directors and shareholders ofD8 were D3 and D4. [This evidence is now admitted by Mr. Tong to be partially wrong as D3 has not been a shareholder ofD8 since August 1989]. D3 had a beneficial interest in D8.

(aa) The plaintiff was aware of the property owned by D8 [which D3 and D4 say is their matrimonial home] being an asset of D3/D8.

(ab) D3 kept dealing accounts with the plaintiff in the name of himself, D4 and D8.

(ac) Evidence of dishonesty was shown by the payments directed to Mandarin and Wealthcorp and D3's answering for and dealing with these two companies' dealing accounts with the plaintiff, and his failure to disclose to the plaintiff the beneficial interest in Mandarin, more specifically referred to above.

(ad) By reason of the aforesaid matters, the inference or conclusion was that the assets owned by D3 were held not in his own personal name but in the name of his wife D4 and D8 and also in the name of Mandarin, which suggested that D3 had already thought about and taken steps to try to divest himself of assets which, more normally, would remain in his own name.

16. Mr. Tang complains of non-disclosure of the following material facts. The plaintiff has alleged that D3 but not D1 and D2 had always answered for Mandarin without disclosing that D1 had already left the employ of the plaintiff in August 1990. In fact, Gary Wong alleged that D 1 left the plaintiff in April 1991. The plaintiff further failed to inform the court of the prevailing practice of the plaintiff that the account executive was responsible for the account to sign the form requesting for delivery of shares in the account (which, according to Gary Wong's evidence, was apparently the case with regard to Mandarin). The plaintiff has alleged that D3 had stalled the formalisation of Mandarin's account without referring to the credit committee meeting minutes demonstrating that D3 had asked other directors/officers of the plaintiff to follow up this matter with people in Taiwan direct.

17. Having done a company search of D8, the plaintiff failed to disclose to the court that D3 was only a director of D8 and had not held any shares in D8 since August 1989. The plaintiff highlighted a few transactions and alleged that D3 owned D4's and D8's accounts without informing the court that D4 had carried out hundreds of or possibly up to a thousand transactions in her account. Had such numerous transactions in her account been disclosed, the few transactions specifically referred to by the plaintiff in Gary Wong's affidavit would have been shown to be insignificant. The plaintiff also failed to disclose to the court the fact that D4 had in response to a margin call turned up at the office of Patrick Yeung and gave a cheque to cover the margin call pursuant to her promise made personally to Patrick Yeung. Further, while the plaintiff suggested that D3 had thought about and taken steps to try to divest himself of assets, it did not disclose to the court that D4's and D8's accounts had been established respectively in 1986 and 1989, long before the transactions complained of. In about the winter of 1991, when the plaintiff introduced a rule that no staff could trade in stocks and shares except with the prior permission of the department head concerned, D3 always obtained prior permission from Patrick Yeung for trading in his own account and in order to avoid suspicion, D3 had also obtained prior permission from Patrick Yeung for all trading done in D4's and D8's account, though those were not his own trading. However, this fact was not disclosed by the plaintiff.

18. Viewing all the relevant evidence now, and especially bearing in mind the serious allegations of dishonesty made by the plaintiff against D3, I am of the opinion that the following matters are material and should have been disclosed or drawn to the court's attention at the ex parte stage. These matters are based on the evidence of D3 on affirmation which have not been challenged by the plaintiff on affidavit.

(a) Although D3's allegation that D1 had left the plaintiff in August 1990 is disputed by the plaintiff who says that D1 only left in April 1991, Mr. Tong has not told me that the fact (albeit borne out by the exhibits to Gary Wong's affidavit) that D1 was not at the credit committee meetings of the plaintiff had been drawn to the attention of the Deputy Judge. This fact and the prevailing practice of D3 as the account executive of Mandarin's account to answer questions concerning Mandarin are in my view material. For without them, the court in merely reading Gary Wong's affidavit (especially with the allegations that D1 only left the plaintiff in April 1991 and that Mandarin was the nominee of D1, D2 and/or D3) would be led to quite a firm belief that D3 had some beneficial interest in Mandarin who received the payments and made the profit from the placement, the subject matters of the plaintiff's claim. That belief would drive the court to conclude that there was a very strong arguable claim against D3 that he had received the payments and profit through Mandarin, and that he deliberately concealed his interest in Mandarin from the plaintiff.

(b) Another material fact is that D3 ceased to be a shareholder of D8 in August 1989, although the date of the cessation might not have been apparent to the plaintiff from the documents exhibited to Gary Wong's affidavit. The plaintiff should, in view of its allegation of D3 having a beneficial interest in D8 and its specific assertion of D3 being D8's shareholder, have made better enquiries in this regard. Failing to disclose or to apprise the court specifically of D3's ceasing to be a shareholder of D8 and the date of such cessation taking place before the transactions complained of must have misled whoever reads Gary Wong's affidavit to believe that D3 was still a shareholder of D8. This matter is material for considering whether D8 was a nominee of D3 and whether D3 was divesting his interest in D8 with a view to frustrate the plaintiff's claim, and if so when.

(c) The facts that D4 had in response to a margin call turned up at the office of Patrick Yeung and gave a cheque to cover the margin call pursuant to her promise made personally to Patrick Yeung and that there were numerous transactions of trading carried out in D4's account must be relevant for considering whether D4 was D3's nominees, and within the plaintiff's enquires. Failing to inform the court of these facts but simply referring the court to various transfers amongst D4's, D8's and D3's accounts would give a false impression to the court. These matters must be relevant for being put into the weighing scales.

(d) Although Gary Wong had mentioned in his affidavit that on 7/7/87 (which is a mistake for 7/7/89), D3 applied to the plaintiff for and was granted a loan to D4's account, to be repaid from his own salary, I do not think the court's attention had been directed to the facts that D4's account was opened in 1986 and D8's account was opened in 1989. These opening dates are important in that they took place well before the middle of 1990 when the transactions complained of occurred. Without distinctly pointing out the account opening dates to the court, the reader of Gary Wong's affidavit would tend to think that D3 had after the questioned transactions started to create these accounts to divest his assets.

(e) There is another material fact. In about the winter of 1991, when the plaintiff introduced a rule that no staff could trade in stocks and shares except with the prior permission of the department head concerned, D3 always obtained prior permission from Patrick Yeung for trading in his own account and (in order to avoid suspicion, according to D3) D3 had also obtained prior permission from Patrick Yeung for all trading done in D4's and D8's account, though those were not his own trading. This fact demonstrates above board dealings by D3, and must be material for considering the question of his honesty or otherwise and whether there was a real risk of dissipation of assets. By way of contrast, this fact is also relevant to the plaintiff's allegation that Mandarin is D3's nominee.

19. There are various authorities on the approach of the court when it is found that there is material non-disclosure. In Shenzhen Universal Enterprises Industry & Trade Co. Supplies & Anr. v. Wei Bun Trading Co. Ltd. & Ors. [1989] HKLR 470, CA, at 474H-475D, the Court of Appeal discharged the ex parte order where it held that there was non-disclosure material to the existence of a good arguable case, although not finding it necessary to decide whether the non-disclosure was deliberate.

20. In Jordache International (HK) Ltd & Ors. v. Guess ?, Inc. & Ors. [1987] HKLR 314, CA, when dealing with serious and substantial material non-disclosure in obtaining ex parte an Anton Piller order, Cons, VP, delivering the judgment of the Court, said at pp.320J-321B:

"The judge made no finding that the non-disclosure by the plaintiffs was deliberate in the sense that it was done for improper motives, what Mr. Adlous has characterised as 'wilful non-disclosure'. And certainly there is no suggestion that those whom the plaintiffs had instructed were parties to any such conduct. But even though the rights of an absent party have been innocently infringed by reason of non-disclosure the courts must not lightly allow another to keep the benefit thereof And where the non-disclosure has been, as in this instance, both serious and substantial, the court should allow it only if there are good and compelling reasons. With respect to the judge, the reasons on which he relied fall far short of that standard, and we ourselves are unable to find others. In our view the yield ought not to have been taken into his consideration.

When that evidence is removed, then, with respect, the case for an injunction collapses, simply because, quite regardless of whether the plaintiffs can show the subsistence and ownership of any particular copyright or confidential information, they cannot show that the seventh defendant has committed any infringement. "

21. In Behbenhani & Ors. v. Salem & Ors. [1988] 2 All ER 143, CA, at p.14ge-g, considering whether to discharge an existing injunction and grant a fresh injunction where there had been non-disclosure of material matters, Woolf LJ said:

"It is preferable, in my view, each case to be considered on its own merits, taking into account the public interest which exists in protecting the administration of justice from the harm that will be caused if applicants for the draconian relief of Mareva and Anton Piller orders do not, on an ex parte application, make disclosure of all material facts, whether the non-disclosure is innocent. I recognise the strain placed on legal advisers and the pressure under which they have to work, especially in large commercial actions, where prompt steps sometimes have to be taken in order to protect their clients' interests. However, if the court does not approach the question of the non-disclosure of material matters in the way that has been indicated in earlier decisions, there will be little hope of solicitors who are subjected to such pressures appreciating the importance of making full disclosure and, more important, bringing home to the clients the serious consequences of non-disclosure.

... it is most important that the court assesses the degree and extent of the culpability with regard to the non-disclosure, and the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court."

22. In Tate Access Inc. v. Boswell [1991] Ch. 512, at p.532H-534D, Sir Nicolas Browne-Wilkinson V-C said:

"No rule is better established, and few more important, than the rule, 'the golden rule', that a plaintiff applying for ex parte relief must disclose to the court all matters relevant to the exercise of the court's discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiffs, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief. …

… the court has to consider all the circumstances of the failure to make proper disclosure and whether such failure was innocent or deliberate and has to weigh the public interest in maintaining the golden rule as against the requirements of justice in deciding whether or not to grant the plaintiff inter partes relief to which he would otherwise be entitled.”

23. It is extremely important for the litigant and members of the legal profession who represent him to bear always in mind the duty to disclose all material facts for the judge to consider and weigh for deciding whether to grant or refuse ex parte relief. Such disclosure includes undoubtedly all the points in favour of the respondent who has not the opportunity of being heard and all the points that are to the disadvantage of the applicant himself. The duty to disclose Call1iot simply be fulfilled by exhibiting voluminous documents covering the points to the supporting affidavit but without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the often short hearing, for it would then impose upon the judge the impossible task of reading and digesting all the materials in the exhibits in the often short time available before the hearing of the application, which impossibility must have been reasonably appreciated or anticipated by the applicant's legal advisers.

24. The applicant and his legal advisers would in these circumstances rest upon the hope that the judge would have appreciated the points to the advantage of the respondent who is not heard when considering the application, or when the respondent applies for discharge of the ex parte order for material non-disclosure, the applicant would fall back upon the argument that even when all these points are examined inter partes, the ex parte relief should nonetheless continue or fresh injunctive relief should be granted. Countenancing such behaviour would, I venture to say, be tantamount to allowing lawyers to knowingly indulge in a lax practice in not fulfilling their duty to comply with what Browne-Wilkinson VC described as "the golden rule", although the non-disclosure may not be castigated as deliberate. Mareva injunctions and Anton Piller orders invariably interfere seriously with the respondent's rights and freedom in his dealing with his business and livelihood and the courts should always be apprised of all the material facts and circumstances in deciding whether to grant such relief. Without the assistance of the legal profession in readily and astutely fulfilling their duty in this regard, the drawing of a proper and reasonable balance between the conflicting interests by the court cannot be achieved. I think that insofar as a serious material non-disclosure, albeit not deliberate one, has been exposed, the court should have no hesitation to discharge the ex parte order and refuse to grant any fresh injunctive relief in favour of the applicant.

25. These items of material non-disclosure I set out above will surely have bearing on the court's consideration on Issues (1), (3) and (4). Mr. Scott, solicitor having the conduct of these proceedings on behalf of the plaintiff, has deposed that the plaintiff's legal advisers were dealing with a very complex case and working under a considerable time constraint. However, the shortage of time under which the plaintiff’s legal advisers worked before bringing the ex parte application must be viewed with the degree of urgency that the matter should receive and be dealt with. There is no evidence to show that there was imminent danger of dissipation of assets by the present defendants. On the contrary, D3 and D4 still kept their share trading accounts with the plaintiff on the date when Deputy Judge Evans granted the ex parte order, and there is now evidence from D4 that on 29/3/93, just a couple of days before the ex parte Order was granted, she paid into her account with the plaintiff $600,000. I accept that the plaintiff must have wished to obtain a Mareva injunction against all the defendants as soon as possible in order to protect its interest despite the lack of imminent danger, but that wish and the degree of urgency in the circumstances of this case, unlike other needy cases, should not in any way be allowed to dilute the duty to comply with "the golden rule".

26. In conclusion, although there is no evidence to show that the non-disclosure was deliberate and Mr. Tang accepts that, I am of the view that the ex parte order made by Deputy Judge Evans and continued by Deputy Judge Yam ought to be discharged, and I so order.

27. I am asked by Mr. Tong to grant a fresh Mareva in the terms of the ex parte order of Deputy Judge Evans. Mr. Tong urges me that in view of all the evidence and allegations of the parties now available, such a fresh injunction should be made. Mr. Tang on the other hand, not only stresses the significance of the matters not disclosed in relation to Issues (3) and (4), but also submits that there is no credible evidence to show that D3 and D8 are the nominees of D3 and that there is not any real risk of dissipation of assets. The plaintiff has no substantive claim against D4 and D8 and the only reason for D4 and D8 to be joined as defendants is that they are alleged to be nominees of D3 and holding D3's assets.

28. Issues (3) and (4) are linked. Insofar as there is credible evidence or good reasons are shown that assets in the names of D4 and D8 belong to D3, then a Mareva may be granted in respect of D4 and D8; on the other hand, such evidence or good reasons showing a history of D3 divesting his assets could or would form a basis for showing a real risk of D3 dissipating his assets for frustrating any judgment that the plaintiff may obtain in this action.

29. I will first consider the authorities on the question of ownership of the assets sought to be restrained.

30. A very helpful note is to be found on pages 523- 524 of the Supreme Court Practice, 1993, Vol. 1:

"Where there is dispute as to ownership of assets to be made the subject-matter of a Mareva injunction, the following principles have been laid down by the Court of Appeal in SCF Finance Co. Ltd. v. Masri [1985] 1 WLR 876; [1985] All E.R. 747.

(1) If the assets appear to belong to a third party they should not be included in the scope of the injunction without evidence that they are the defendant's;

(2) The mere assertion of the defendant that a third party owns the assets need not be accepted without inquiry and the same principle applies to claims by a third party to intervene to vary the injunction to exclude the assets;

(3) The Court must do its best to do what is just and convenient between all concerned;

(4) In a proper case the Court may direct an issue to be tried either before or after the main action as to the ownership of the assets.

The plaintiff must adduce evidence that the assets in question are in fact those of the defendant; it is not enough for the plaintiff to show merely that there is a serious issue to be tried as to the ownership of the assets (Allied Arab Bank Ltd v. Hajjar [1987] 3 All E.R. 739, CA)."

31. For justifying the making of a Mareva Injunction against a defendant who is not a substantive one or a third party, Lloyds LJ in SCF Finance Co. v. Masri, ibid., said at 884B:

"Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, e.g., a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant."

32. In T.S.B. Private Bank International S.A. v. Chabra [1992] 1 WLR 231, at 242C, Mummery J. used the term "credible evidence" in this connection. He said:

"The company is a party to this action. It is properly a party to this action under RSC Ord. 15, r. 6. There is a cause of action against Mr. Chabra. Although there is no cause of action against the company, there is credible evidence, not contradicted by evidence from Mr. Chabra, that assets apparently the property of the company may, in fact, be assets of Mr. Chabra and therefore available to satisfy a judgment obtained against him. In these circumstances, if an injunction against Mr. Chabra is inadequate to protect the plaintiff from the risk that assets vested in the company may become unavailable to satisfy the judgment obtained against Mr. Chabra, an injunction should be made against the company to prevent it from dissipating assets."

33. The matters not disclosed at the ex parte stage must therefore also be viewed in the light of these authorities. And when they are so viewed, the significance of the non-disclosure is highlighted. Further, despite the length of Gary Wong's affidavit containing no less than 30 pages, and despite the long relationship between the plaintiff and D3 prior to his departure, there was no attempt to apprise the court of the background and family and personal particulars of D3, which must be relevant to Issue (4), which is whether there is a real risk that the present defendants would dissipate assets.

34. In Chow Chor-leung v. Rafaella Sportswear Inc. [1990] 1 HKLR 449, CA, at 451 E-452A, the Court of Appeal cited with approval and adopted the guidelines laid down in Third Chandris Shipping Corpn. v. Unimarine SA. [1979] 1 QB 645. At pp.671G to 672D of the report, Lawton LJ said:

"There must be facts from which the Commercial Court, like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction. For commercial men, when assessing risks, there is no commercial equivalent of the Criminal Records Office or 'Ruff’s Guide to the Turf’. What they have to do is to find out all they can about the party with whom they are dealing, including origins, business domicile, length of time in business, assets and the like; and they will probably be wary of the appearances of wealth which are not backed up by known assets. In my judgment the Commercial Court should approve applications for Mareva injunctions in the same way. Its judges have special experience of commercial cases and they can be expected to identify likely debt dodgers as well as, probably better than, most businessmen. They should not expect to be given proof of previous defaults or specific incidents of commercial malpractice. Further they should remember that affidavits asserting belief in, or the fear of, likely default have no probative value unless the sources and grounds thereof are set out: see R.S.C., Order 41, rule 5(2). In my judgment an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the court to assess its strength and should set out what inquiries have been made about the defendant's business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise. But if nothing can be found out about the defendant, that by itself may be enough to justify a Mareva injunction."

35. In O'Regan and Ors v. Iambic Productions Ltd [1989] New Law Journal 1378, at p.1379, Sir Peter Pain said:

"There are numerous paragraphs in the authorities relating to Mareva injunctions which make it plaint that unsupported statements and expressions of fear carry very little, if any, weight. The court needs to act on objective facts from which the court can infer that the defendant is likely to move assets abroad or dissipate them within the jurisdiction. ...

36. There is another material point. It is clear that to support a Mareva application there should be evidence before the court dealing with the background of the defendant company and of the director of the defendant. I now know that he is clearly a family man, resident in Bristol, and a man of good standing (apart from this matter) with a successful company.

37. It has been made clear ever since Third Chandris Shipping v. Unimarine [1979] 2 All ER 972 that it is the duty of a plaintiff applying for a Mareva order to provide the court with information about the defendant. ..."

38. It has been disclosed in the affidavits filed on behalf of the plaintiff that the present defendants have kept their share dealing accounts with the plaintiff even up till now, although D3 has since July 1992 left the plaintiff to work for another broker in Wardley James Cape! Ltd. D3 was earning a substantial salary from the plaintiff and has acquired considerable experience in stock market trading. D4 and D8 have not been shown to have taken any or any recognizable steps to frustrate any claim to be brought by the plaintiff. The plaintiff, has however, not said a word about D3's family background, which it must have known with D3 working for it for a number of years.

39. D3 alleges that he is a family man with two young children, that he and D4 have not acquired any right of residence in any other country and that the property owned by D8 is their matrimonial home. These facts are unchallenged by the plaintiff. There is also evidence from D4 that on 29/3/93, just a couple of days before the ex parte Order was granted, she paid $600,000 into her account with the plaintiff. All the above evidence tends to support Mr. Tang's submission that there is no real risk that assets will be disposed of to frustrate judgment.

40. On the other hand, Mr. Tong has drawn my attention to the fact that despite D3's knowledge that D1 had some interest in Mandarin and that the payment of $26.4 million was to be received by Mandarin apparently on behalf of D1, D3 chose not to reveal the beneficial ownership of Mandarin to the plaintiff or even told the plaintiff to make inquiries with D1. Apart from D1, D2 and D3, there were five other directors of the plaintiff at the material time. Had D3 not been involved in the questioned transactions in a culpable way, he should have simply told other directors that D1 had an interest in Mandarin and the plaintiff should chase after D1 for the opening documentation in respect of Mandarin. According to D3's own evidence, he was apparently blindly satisfied with what D1 told him that the payments to be received by Wealthcorp and Mandarin from Tomson and Bond Holdings had been known and agreed to by the other directors without raising the matter with any other director or seeking to see a Board resolution. Even if D3 had not himself received any part of the payments and profits, or been instrumental in causing them to be paid to D1, D2, Mandarin and/or Wealthcorp, he was acting in a suspicious manner in concealing all these matters from the plaintiff which an honest director would not do. Knowing that D1 had some interest in Mandarin, D3 should also have alerted or at least inquired with other directors whether Mandarin taking up the placed Bond shares would be against the prohibition of 1/5/90 imposed by the plaintiff. The non-disclosure found by me is not material to this issue on concealment.

41. D3's transfer in August 1989 of his shares in D8 to D4 and his raising a loan of $370,000 repayable with his salary to pay off the indebtedness of D4's account allegedly as gifts must be viewed in the light of a pending claim in the tune of $84 million in High Court Action A5081 of 1989 brought by ChinTung Futures Ltd. in September 1989 against him. I am of the view that D3 must have realised that if he remained a shareholder of D4, his shareholding as well as his other assets would be liable to be charged for the satisfaction of a possible judgment in that action. The transfer and loan indicate D3's preparedness to divest his assets. Although I have been told by Mr. Tong very fairly that D3 settled that claim for about $1 million, that is ex post facto, and might not have affected D3's mind when giving his shares in D8 to D4 and obtaining the loan.

42. For considering a real risk of dissipation, it is relevant to note the following authorities. In Guinness Plc v. Saunders [1987] The Independent, April 15, (cited in Goldrein & Wilkinson, 2nd Ed., 185-186), Browne-Wilkinson VC said:

"In my judgment dishonest behaviour is relevant to Mareva relief not by reference to what is pleaded but by reference to the possibility or likelihood of its existing. Whether or not pleaded, if there is dishonesty or suspicious of dishonesty, that will be an important ground on which Mareva relief can be obtained."

43. In Agip v. Jackson [1990] 1 Ch. 265, Millet J. said that "secrecy is the badge of fraud."

44. In Honsaico Trading Ltd. v. Hong Yiah Seng Co. Ltd. [1990] 1 HKLR 235, Godfrey J. thought that "an unacceptably low standard of commercial morality" giving the court a feeling of uneasiness would drive the court to the conclusion that there was a real risk of dissipation of assets.

45. Based on all these matters, Mr. Tong asks me to draw the inference that D3 was of questionable integrity, which justifies a Mareva. I think he is right.

46. Mr. Tong has also drawn my attention to various aspects of the evidence in support of the plaintiff's case that D4 is the nominee of D3. It is admitted that D4 started to be a non-working housewife since 1988. Yet, the figures involved in D4's account are huge although in the middle of 1989, the value of her share portfolio was small and insignificant. As I said before, on 7/7/89 D3 borrowed from the plaintiff $370,000 for repaying indebtedness of D4's account and in August 1989 D3 gave his shares in D8 owning the matrimonial home to D4 as a gift. In September 1989, ChinTung Futures Ltd. brought the huge claim against D3. In August 1990, D3 used part of D3's bonus to repay the indebtedness of D4's account. There were also a number of transfers from D3's account to D4's account, for instance, $660,839.82 on 7/4/92, $540,000 on 8/4/92, and 48,000 Wai Kee warrants on 15/9/92. On the other hand, from D4's account to D3's, there were transfers of securities and a sum of $600,000.

47. Last but by no means least, all the account opening documentation and withdrawal documents concerning D4's account have been admitted to have been signed by D3 writing D4's name in English, which shows that D3 was the only person who could effect any transfer of interest therein despite the fact that D4 remained the holder in name. Of course, if there were to be a dispute between D3 and D4 regarding the ownership of this account, D4 could probably freeze this account in her name until the dispute be resolved. The fact that D3 has been operating this account apparently with complete freedom including withdrawal of interest therefrom does give rise to the belief that he has or has retained interest in it. D3 's explanation is that he has been advising D4 in respect of her investment in shares and he has been handling and signing all these documentation for her upon her authorisation and purely for convenience, "so that she would not have to visit the Plaintiff's office frequently". I do not see why the convenience required or wished to be enjoyed would have gone to such an extent as enabling D3, but not D4, to have full control of the account. A single-occasion inconvenience, for example, of bringing home the account opening documentation as well as a power of attorney or authorisation for D4's execution empowering D3 also to operate the account (without D4 losing control) would have avoided all D4's trouble from attending to any further formality, and such negligible inconvenience would not even by D4's save for her putting pen to paper for a moment.

48. Mr. Tang stresses that there is no law against a person giving money or assets to his wife and to provide for his family unless he is insolvent at the time and that there is no duty for anyone to maximise his assets in case he should have creditors in future. How right it sounds. However, making gifts is very different from making gifts with a retention of full control over the assets given.

49. D4's account is now worth about $7.2 million, whereas D3's account is now worth about $2.2 million. Although there is evidence that for a period of 10 months between 3/4/92 and 3/2/93 D4's account reaped profits over $2 million, the discrepancy between the worth of the two accounts does require further explanation than those already given. D3 was working for the plaintiff earning a substantial income, and has thereafter been working with Wardley James Capel. On the other hand, D4 has been a housewife since 1988. D4 has not proffered any explanation with supporting evidence save for the $600,000 that she put in on 29/3/93 and her answering the margin call by Patrick Yeung. Neither she nor her husband has disclosed the source of her funds.

50. In the circumstances, while not attempting at all to decide the issue of nomineeship, which must be a matter for the trial, I am of the view that there are good reasons for supposing that the account in D4's name belongs to D3, or in other words, D4 is D3's nominee in respect of this account. If follows that there are also good reasons to believe that D3 has divested his assets.

51. I am told, and it seems undisputed, that D8's account with the plaintiff has remained dormant after the entirety of its credit balance was transferred to D4's account on 23/2/93. As D8's director, D3 was handling and signing all the documentation in respect of D8's account. There does not seem to be anything suspicious or sinister about this. D8 'is not shown to have any other asset except the matrimonial home. Again it does not seem at all sinister that D8 was a property holding company for the matrimonial home of D3 and D4 who were its only equal shareholders. However, D3's shares in D8 were given to D4 in August 1989, just shortly before ChinTung Futures' huge claim against D3 was instituted. Bearing in mind the timing of this transfer, and overshadowed by the view that I have formed on D4's nomineeship, I am driven to the same conclusion that there are good reasons to suppose that D8 is D3's nominee.

52. I have not forgotten the fact that there is no evidence to show that either D4 or D8 is likely to dissipate assets. But in view of my conclusions concerning D3 and the nomineeships, I think a Mareva should be issued against all the three present defendants.

53. There is no challenge that the plaintiff is substantial and good enough for its cross-undertaking as to damages and it is common ground that arrangements have been made for trading to be done in respect of these defendants' accounts with the plaintiff. It appears that not much damage will be caused by the order I am about to make, and if these defendants do suffer any damage and are vindicated at the trial, they have the plaintiff's cross-undertaking to look forward to. In the circumstances, although I have discharged the ex parte order for material non-disclosure, I am prepared make a order in the same terms as the Order of Deputy Judge Evans, following the course adopted by the Court of Appeal in Shenzhen Universal Enterprises Industry & Trade Co. Supplies & Anr. v. Wei Bun Trading Co. Ltd. & Ors., ibid., subject to the plaintiff's undertaking through counsel to take out a summons for the same, and of course subject to a cross-undertaking as to damages.

54. In view of the partial success of each of the parties, I make an order nisi that the parties' costs of these defendants' summons and of this hearing be in the cause, with a certificate for leading counsel and one junior counsel.

55. I think this judgment is of some interest to the legal profession, especially on the duty to make full and final disclosure on ex part applications, and unless either of the parties before me objects within 14 days of receipt of this judgment, I propose to have a copy lodged with the Supreme Court Library.

56. I am left to thank counsel for their five sets of skeleton submissions and the assistance they have so unfailingly rendered me in this matter, without which I would not have been able to give this judgment at such a short time.

Mr Robert Tang, Q.C., Mr. Louis Chan, Mr. Lawrence Law and Mr. Don So (on the instructions of Messrs. Ho, Wong & Wong) for the 3rd, 4th and 8th defendants.

Mr Ronny Tong, Q.C., Mr. Paul Shieh and Mr. Kaiser Kong (on the instructions of Messrs. Freshfields) for the plaintiff.