CHOW FU HSIEN v. K VISION INTERNATIONAL INVESTMENT (HK) LTD

HCA2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

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J U D G M E N T

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1.  In 1998 a trust deed was executed by the defendant acknowledging that 35% of its interest in Beijing K Vision was held on trust for the plaintiff, Madam Chow. I do not need to detail how Madam Chow’s interest came about save that in April 1994 Madam Chow’s nominee signed a Chinese agreement by which she became a 35% shareholder in HK K Vision.

2.  On 31 July 2004, Madam Chow demanded an account of her beneficial interest in HK K Visions in Beijing K Vision.  There then began what can only be described as a persistent campaign by Mr Qu Hong, the majority shareholder in HK K Vision, to deny Madam Chow’s interest and avoid or evade court orders which not only recognized her interest but sought to give effect to it.

3.  On 7 September 2004, HK K Vision denied Madam Chow’s interest under the trust.  In December 2004 Madam Chow commenced proceedings seeking amongst other consequential orders a declaration that the 1998 Trust was valid and subsisting and that it represented 35% of the shares of HK K Vision, including attributable income and profits, as being Madam Chow’s.

4.  Commercial developments and/or an Arbitration in 2005 through 2006, led to the liquidation of Beijing K Vision and the acquisition by HK K Vision of two particular assets :

(1)  3,000 sq.m. of the completed office block of Celebrity Plaza; and

(2)  26.7% share of the net asset value of Beijing K Vision excluding the service apartment of the Celebrity Plaza.

5.  On 19 July 2007, Madam Chow obtained summary judgment in her action, against which HK K Vision lodged a Notice of Appeal, dated 2 August 2007.  

6.  In accordance with the judgment obtained by her, Madam Chow proposed directions for the taking of the account.  Within a week the defendant rejected the proposal as it was proceeding with the appeal and said that in any event it was unable to give an account without saying why.  Solicitors for Madam Chow took out a summons for directions for the taking of an account in mid‑September, and one month later, the defendant filed an affidavit opposing the plaintiff’s application.  The defendant then in November 2007 took out a summons to stay the execution of Madam Chow’s judgment pending the hearing of their appeal.  That was dismissed on 12 November 2007 and directions for the taking of an account given.

7.  On 20 February 2008, the defendant’s appeal against the judgment was dismissed.  They then sought to parry Madam Chow’s efforts to obtain a hearing date for the taking of the account which she made on 27 November 2008.  

8.  In early February 2009, Master de Souza gave leave to fix a hearing date and further directions for the taking of the account and ordered costs against the defendant.  The defendant appealed Master de Souza’s order.  The appeal was dismissed on 10 March 2009.

9.  November 2009 finally saw the result of a long hearing before Master Lai.  He decided that out of the net profit of almost HK$108 million from sales by the defendant, Madam Chow was entitled to HK$37,787,830 and either 40 cents or 50 cents, the figures vary, and that the defendant should pay this to her with interest at the HSBC prime rate from the date on which her cause of action for an account and payment arose (26 October 1995).  He varied his order in relation to interest in March 2010.

10.  The defendant then brought yet another appeal, heard by Mr Recorder Benjamin Yu, SC, who affirmed the order of Master Lung save as to the crystalised financial interest of Madam Chow which he set aside and ordered the parties to agree a figure.  The reasons for this do not concern me even though the parties responded to this by agreeing a figure less than half that decided by Master Lung, because as recently as 3 June this year the Court of Appeal restored Master Lung’s figures. 

11.  The defendant had indulged yet another appeal this time against Mr Recorder Yu’s judgment.  In the meantime the defendant through its solicitors continuously refused to provide information following the plaintiff taking out a summons for the appointment of a receiver.  

12.  On 16 February 2010, Master Lai ordered the appointment of two accountants with Deloittes as receivers of the assets of the defendant arising out of the liquidation of Beijing K Vision, identifying the three assets in his order.  There were other consequential orders as well as an order that the costs of the plaintiff’s application be paid by the defendant.  It is this order which the defendant now appeals before me.

13.  Mr Jonathan Wong has in effect sought to rehearse the same argument he advanced before Master Lai but they were attractively done without success.  He sought to rely on much of what Kwan J (as she then was) said in In re K Vision International Investment (H.K.) Limited, HCCW1277/2004.  I find such reliance misconceived.  We are dealing with a significantly different set of circumstances and the Learned Judge’s comments and findings, though relevant to the case before her, cannot be lifted out of that factual matrix so as to be made relevant to the case before me.  Master Lai was rightly dismissive of it.

14.  Mr Wong at length reviewed periods of time which elapsed between certain events and some activities by the plaintiff.  These are as nothing compared with the obstructive actions or inaction as I find them to be, on the part of the defendant.  My short review of the history speaks for itself.  Madam Lam’s actions or possible actions are introduced by the defendant as if they had some relevance to the merits of the plaintiff’s efforts to obtain what is unarguably now, due to her.  He complained of a delay by the plaintiff.  But the whole situation has changed.  At the time of her initial application she had not obtained judgment and her interest had not been crystalised.  There is no merit in the delay point.

15.  Mr Wong has also relied on a number of authorities for general propositions.  There is no doubt that the court has the power to appoint a receiver after judgment to protect and gather in assets which are the subject of that judgment (see Soinco SACI & Anor v Novokuznetsk Aluminium Plant and Or [1998] QB 406, Colman J at page 422).  Lord Justice Farquharson in Orwell Steel Ltd v Asphalt Ltd [1984] 1 WLR 1097 stated clearly that :

“There is power to grant an interlocutory injunction between final judgment and execution.”

Section 37(1) of the Supreme Court Act 1981 provides :

“The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.”

16.  In my judgment there is no logical reason in this case why a receiver should not be appointed.

17.  Ms Liza Wong, S.C., for the plaintiff, made it succinctly clear that delay as alleged and identified by Mr Wong is immaterial given all the events which had overtaken the December 2005 state of play.  Any suggestion of delay in the appointment of receivers and the security required is without foundation.

18.  The fact that the plaintiff has taken proceedings on the Mainland to freeze the assets in which she has an interest is irrelevant to the issue before me.  No doubt she is well advised to use every avenue to safeguard her interest. 

19.  The application before Master Lai was concerned with the administration of a trust, and the preservation of the assets and the plaintiff’s interest in them.  Any argument about whether or not the plaintiff should have pursued an application in 2005 is an irrelevant diversion.  The Master took the view, in accordance to Mr Wong’s submission, that no risk of dissipation of assets has been improved.  But he also took the view, and I take the same view, that the defendant has persistently refused to account to the plaintiff for the trust assets.  That is unquestionably misconduct.  In my judgment the defendant has cynically tried to obstruct the plaintiff at every turn, having initially denied that any such trust existed.  They have used or rather misused proceedings in the court to avoid any accountability to the plaintiff or, at the very least, in order to delay it for as long as possible.  One asks rhetorically, why?

20.  Having had the benefit of looking back at the full history of the dispute, I have concluded without hesitation, that there is a risk of dissipation of assets.  The defendant’s twists and turns reasonably raise the spectre that it has been trying or is trying to put assets out of the plaintiff’s reach.  How else, one asks, can it explain its maneuverings over the relevant period? Quite simply, on the evidence before me, the defendant cannot be trusted to protect the interest of the plaintiff.  The court, as it has demonstrated on a number of occasions in these proceedings, has an overriding duty to protect a beneficiary’s interest in a trust where it has been shown that the persons or entities otherwise responsible for ensuring a beneficiary’s interest has shown itself to be incapable, negligent or simply unwilling to do that.  

21.  The order of Master Lai was correct and stands.  But there is one aspect which I would wish to discuss with counsel, not extensively because I think this is not the time for it.  I do not know, because I have not researched it whether the court has any jurisdiction to consider in the circumstances of the case, if it can order that the costs of the receiver be paid by the defendant out of its share of the assets of the proceedings recovered, rather than out of the total value of the assets realised before distribution.  Because clearly under the present provision the receiver’s costs are deducted from whatever assets are recovered, en bloc, at the outset.  But there is an argument — not that I am going to hear that today — that given the circumstances of this case those costs should be borne by the defendant alone and not imposed in part upon the plaintiff’s beneficial interest.  I leave that because it may be that both counsel are not able to say here and now it is or is not within the court’s jurisdiction to consider that in any event.  I leave it to activate the minds of counsel respectively.  There is of course liberty to apply.

22.  I leave the question for the decision of the receiver to be crystalised, with the appropriate security, because obviously as a result of the decision of the Court of Appeal on 3 June 2011, the figure for the plaintiff’s interest has been revised.

[Submissions from counsel]

23.  The appeal is dismissed with costs to the plaintiff.  I make an order for a certificate for two counsel.  The nature and history of his litigation justifies it.

HCA2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2884 OF 2004

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HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

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BETWEEN

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HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

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D E C I S I O N

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The Application

1.  By an order of this court dated 19 July 2007, summary judgment was entered in favour of the plaintiff against the defendant wherein a declaration was made that the defendant held 35% of its interest in the project in Beijing known as Celebrity Plaza (the project), including all income and profits attributed thereto, on trust for the plaintiff and the defendant was obliged to account to the plaintiff all the income and profits generated.

2.  The order further provided that the defendant should pay the plaintiff the sum due upon taking account of its interest in the project, with interest at such rate and for such period as the court should determine at the taking of the account.

3.  The defendant appealed to the Court of First Instance against the above order.  The Court of First Instance has confirmed the order.

4.  The plaintiff applied to the court for taking the account, but the defendant opposed the application.  The defendant had put forth a number of reasons, which are no longer relevant now as this issue has been determined by Mr. Justice Cheung in his Judgment delivered on 10 March 2009.  Having fully considered the matters raised by the defendant, the learned Judge decided that the accounting exercise must go ahead. See paragraph 29 of the Judgment.

Factual Background

5.  The project is a very valuable and substantial property development in Beijing near the Olympic Game site comprising shops, entertainment centers, office building and service apartments, covering building area of about 11,000 square meters.  See bundle B page247-45, paragraph 4 [B-247-45, 4].  In June 1994, the plaintiff introduced this project to Mr. Qu Hong, the majority shareholder of the defendant because she had already had other property developments in Beijing and she did not want to overstretch her financial commitment in this project.  The defendant formed a joint venture company called Beijing K. Vision Building Construction Company Limited (Beijing K Vision) with another corporation called Beijing Residential Development Construction Holdings Company (Beijing Residential) as its partner, each holding 80% and 20% shareholding of the joint venture company respectively.

6.  Mr. Qu had no experience in property development himself.  In order to tap on the plaintiff’s experience in property development, Mr. Qu on behalf of the defendant, had entered into a written agreement whereby the defendant agreed to assign 35% of its interest and indebtedness in Beijing K Vision to the plaintiff and hold it on trust for her in consideration of her agreement to render her experience and expertise in the project and for further development of the joint venture business. [A-5]

7.  In August 1995, the defendant sold 55% of its shareholding in Beijing K Vision to a company called Sino Science International Trust Co. Ltd. (Sino Science).

8.  In 1995, the defendant bought from Beijing Residential 20% of Beijing K Vision’s shares.

9.  In 1996, the defendant further sold 25% of its shareholding in Beijing K Vision to another company called Far East Petroleum Company Limited (Far East).

10.  It can be seen that at this point, the project was controlled and owned by Beijing K Vision with 3 joint venture partners, viz. the defendant, Sino Science and Far East having shares of 20%, 55% and 25% in Beijing K Vision respectively.

11.  The project was completed in November 2004.

12.  In December 2004, the defendant commenced arbitration against Sino Science, making Far East as a party as well.  In April 2006, the Arbitration Tribunal made a winding-up order against Beijing K Vision.  A Liquidation Committee was appointed to administer the liquidation process, which has not completed up to date.

13.  In July 2004, the plaintiff had, through her solicitors, demanded for an account of her interest in the project.  The defendant denied her interest in the project whereupon the plaintiff took out this Action against the defendant in December 2004.  As said before, a summary judgment was entered against the defendant in July 2007.

The Hearing

14.  Madam Chow and Mr. Qu have given evidence in court. As far as their credibility is concerned, fortunately I have the documentary evidence to which I can make reference for verification.  Therefore, it is not necessary to place heavy reliance upon their demeanors in court.  Of course, I will bear in mind that the witnesses have their commercial interest to serve in this hearing.  Mr. Qu has given affirmation evidence in the summary judgment proceedings and the application for staying the proceedings.  The court did not accept his evidence.  This will, no doubt, affect his credibility when this court is left with no other evidence, documentary or otherwise for reference and verification.  All these factors are relevant for assessing the credibility and/or reliability of a witness as stated clearly in Four Seas Fish Balls Company Limited v Yeung Hung Sin and Cheung Bik Chun HCA4159/2003 at paragraph 20.

The Expert’s Report

15.  By an order of this court dated 6 February 2009, the plaintiff and the defendant were given leave to adduce affirmation evidence and the evidence of one accountant expert for each [A-21].  The plaintiff has adduced one accountant’s report [B-229 to 245].  The defendant did not adduce any accountant’s report, but has only filed an affirmation of an accountant, which I do not find it very useful for the present purpose.

16.  The whole exercise of taking account in this hearing is based upon the plaintiff’s expert, Mr. Tam’s report.  In the conclusion of his report, Mr. Tam held that the approximate profits generated from the project for the defendant were the summation of:

(a)    approximately HK$142,289,710.94; and

(b)   the property rights of 3,000 square meters of the completed office building of Celebrity Plaza; and

(c)   26.7% of the net asset value of Beijing K Vision (excluding the service apartment premises); and to deduct

(d)   the payment of interest for the period from 16 March 2005 until settlement of the amounts payable to Far East for RMB2,950,057.08; RMB449,455 and RMB4,290,130 respectively as awarded by the Arbitral Tribunal. [B-242]

The value of the plaintiff’s interest in the project is 35% of the aggregated value of the above components.

17.  Below is a table of summary of the sales of the shareholdings by the defendant to Sino Science and Far East extracted from Mr. Tam’s report [B-240]:

Description	Amount in US$	Amount in RMB	Unsettled Items
(1) Sale of 55% shares -  Amount received in accordance to the First S & P Agreement -  Property rights entitled to be received from Sino Science	22,000,000.00	105,690,000.00	3,000 sq. m. of the completed office building of the Celebrity Plaza
(2) Sale of 25% shares -  Amount received in accordance to the Second S & P Agreement -  Amount not received and shall be applied to offset to the amount due to Far East	16,826,100.00 411,900.00
(3) Remaining 20% shares -  Amount to be determined by the liquidation committee of Beijing K Vision			26.7% of the net asset value of Beijing K Vision (exclude the service apartment premises)
(4) Total costs
(i)   Contribution to Beijing K Vision	(12,000,000.00)	(156,353,563.74)	To be determined
(ii)  Payable to Far East
-   public construction cost		(2,950,057.08)
-   interest up to 15-3-2005		(1,231,902.93)	To be determined
-   interest from 16-3-2005 until settlement
(iii) Payable to Far East
-   land transfer fee and its penalty charge		(449,455.00)
-   七通一平 cost		(4,290,130.00)
-   interest up to 15-3-2005		(1,745,768.79)
-   interest from 16-3-2005 until
-   settlement
-   offset of consideration	(411,900.00)	3,409,090.00
(iv) Audit fee receivable from Sino Science		50,000.00
(v)  Arbitration fee receivable from Sino Science		296,999.73
(vi) Counter claim arbitration fee payable to Far East	(24,086.30)
Total	26,802,013.70	(57,574,787.81)
Net profit denominated in HK$ (assumed exchange rate HK7.75 to US$1 & HK$1 to RMB0.88)			HK$142,289,710.94

18.  HK$142,289,710.94 represents the net profit of the defendant’s sale of its shareholding in Beijing K Vision to Sino Science and Far East in 1995 and 1996 respectively after deducting the total costs for the project.  In his report, Mr. Tam said that he had made reference to the findings of the Arbitral Tribunal, which the defendant accepted.  He concluded that the said amount of HK$142,289,710.94 was the net sales proceeds.  He took the view that the court should base on this amount to work out the plaintiff’s share of interest.

19.  The defendant argued that HK$142,289,710.94 was the gross sales proceeds only, without taking into account of the following costs and outgoings of the project:

(1)   RMB105,690,000, being the payments of RMB20,000,000 to Beijing Residential; RMB62,201,000 to Beijing Land Management Bureau for Land Use Fees and RMB23,489,000 to Beijing K Vision for investment;

(2)   Tax for the amount of RMB27,459,585;

(3)   Tax penalty for late payment;

(4)   Interest on the loan of USD12 million made by the defendant from Oriental Patron Finance Limited (OPL) for the registered capital of Beijing K Vision.

20.  The parties accept that the value of the 3000 square meters office building of Celebrity Plaza and the 26.7% of the net asset value of Beijing K Vision (excluding the service apartments) cannot be determined in this hearing, not until after the completion of the liquidation process in Beijing.

21.  Item 16(d) refers to the interest payable by the defendant to Far East for the construction costs incurred by Far East, which Mr. Tam was unable to determine.  In any event, Far East has already withheld US$411,900 (RMB3,409,090) for setting off these payments.  As there is still substantial value in the remaining interest in the project for setting off these costs, if any, parties did not argue on this item.

22.  Mr. Wong, counsel for the defendant has raised 4 issues to challenge Mr. Tam’s report on HK$142,289,710.94, which Mr. Tam held to be the net profit after taking into account of the costs for the project.

The First Issue

23.  Mr. Wong submitted that Mr. Tam’s valuation of HK$142,289,710.94 (RMB 125,214,945.50) was wrong because it was based upon the wrong assumption that RMB105,690,000.00, which formed part of the consideration for the sales of the shares to Sino Science, was already included in the capital reserve of RMB156,353,563.74.  According to the Arbitral Award, the defendant had already injected USD12 million as the registered capital and RMB156,353,563.74 as the capital reserve in Beijing K Vision prior to 31 August 1995. [B-193]

24.  RMB105,690,000.00 was remitted in three trenches as directed by Sino Science in the following manner:

(1)   on 4September 1995, RMB20,000,000 to Beijing Residential;

(2)   on 17 October 1995, RMB62,201,000 for Land Use Fees;

(3)   on 26 October 1995, RMB23,489,000 to Beijing K Vision.

25.  The plaintiff accepted that (1) and (2) above should be treated as the costs for the project, (1) being for the building cost and (2) being fees for land use.  Mr. Tam in his evidence also agreed that they should be treated as the costs for the project, but he said that they had been included in the reserve capital of RMB156,353,563.74.  According to Mr. Tam, the defendant had contributed US12,000,000 as capital and RMB156,353,563.74 as capital reserve for the project and he said in his report under the heading of “Total costs contributed by Hong Kong K Vision” [B-238] Clause 5.2:

“Hong Kong Vision has also contributed in aggregate RMB156,353,563.74 to Beijing K Vision which was recorded as capital reserve (page 33 of the Arbitral Award No. 0126 and page 4 of the Audit Report No.007).  Such amount has been confirmed by the Audit Report No.360 and the Arbitral Award No. 0126 (page 5).  According to the Audit Report No.007, the contributions comprise of, amount other things, (i) certain waiver of debts owed by Beijing K Vision to Hong Kong K Vision and its related companies and (ii) Hong Kong K Vision to procure other creditors of Beijing K Vision to waive their respective debts.  Such amounts, as listed below in clause 5.5, have been recorded in Beijing K Vision’s books as part of the project costs with voucher no. 139 and 42 (pages 5 and 6 of the Audit Report No.007.”

26.  Clause 5.5 of the report sets out the movements of the capital reserve and the particulars of voucher 139 and voucher 42, totally RMB156,353,563.74.

27.  The strongest evidence to determine whether HK$142,289,710.94 has taken into account the costs for the project can be found from the findings of the Arbitral Tribunal, which the defendant did not dispute.  In the Arbitral Award, the tribunal found that the defendant had made a profit of RMB35,167,437 from the sale of the 55% of its shareholding in Beijing K Vision to Sino Science.  Taking into account of the fact that the property market in Beijing had risen substantially over the years, the Tribunal held that in order to be fair to Sino Science, the defendant’s original entitlement to 6,000 sq. m. property right should be reduced to 3,000 sq. m. [B-215-216].  Mr. Qu confirmed that he accepted this finding.

28.  According to the Arbitral Award, the profit of RMB35,167,437 was arrived at by subtracting from the sales proceeds of the defendant’s shares to Sino Science of RMB294,518,200 the US12 million (RMB102,997,200) registered capital and the capital reserve of RMB156,353,563.74. [B-215, 2(3)(4)]  If the costs of the project remained outstanding, the Tribunal should have taken into account such costs before arriving at the profit. Since the Tribunal had arrived at the profit of RMB35,167,437, the cash proceeds of the sale of the defendant’s shares to Sino Science must, by common sense, have been cleared of all costs.  Obviously, the subsequent payments to the three respective parties as described in paragraph 24 supra cannot be double-counted as any additional costs.

29.  The defendant was unable to argue against the above analysis at the hearing.

30.  It will therefore be reasonable for Mr. Tam to conclude in his report that the building costs and the Land Use Fees had been paid or provided for before 31 August 1995.  Mr. Tam’s belief can be fortified by those particulars set out in Clause 5.5, the movements and set-offs of the capital reserve.  At this point, it seems quite clear that RMB105,690,000 should not be taken into account again to be deducted from the net profit of HK142,289,710.94 as found by Mr. Tam.  However, Mr. Wong had made other comments on Mr. Tam’s treatment of the accounts in the Audit Reports No.352 and No.360, I shall deal with his comments below.

31.  Mr. Tam admitted that, in making the inference that the costs for the project had been included in the capital reserve, he had relied upon the balance sheets of Beijing K Vision, which were the appendices to the Audit Report No.352 [C4-1896] and Audit Report No. 360 [C4-1903] of Beijing K Vision compiled for the sale and purchase of the defendant’s shares to Sino Science. The balance sheets set out the assets and liabilities of Beijing K Vision as at 31 August 1995. [C4-1899 & 1905].  In the said balance sheets, there is an item “預付帳款” which amounted to RMB173,463,089.  Mr. Tam described it as the amount that should be paid but not yet paid.  He said that this accounting item should have included the costs of the project, which had been included in the reserve capital of Beijing K Vision.  This is the reason why he did not deduct the building cost and the Land Use Fees from the sales proceeds of the defendant’s shares to Sino Science.  Mr. Wong had, in his cross-examination, asked Mr. Tam to identify the account entries that he considered would include the building cost and the Land Use Fees in the capital reserve.  Mr. Tam admitted that the accounting materials did not permit him to identify for sure the exact entries, but he referred to clause 5.5 of his report, which showed the movements of the capital reserve with particulars of voucher 139 and voucher 42, some of which, as I could see, well exceeded the building costs and the Land Use Fees.  It is therefore possible for the building cost and the Land Use Fees to have been taken into account from the capital reserve before the signing of the Agreement for sale and purchase of the shares to Sino Science.

32.  Mr. Wong further commented Mr. Tam’s treatment of “預付帳款”, which he put to Mr. Tam as the amount prepaid and should not be under the current asset, but should be classified under the current liability.  Mr. Tam explained that this was the mainland practice to treat this item and classified it under the current asset.  Mr. Wong had not challenged Mr. Tam’s evidence as to the mainland accounting practice.  No doubt, in Mr. Tam’s resume, he had the mainland accounting experience.  There is no expert evidence from the defendant to rebut Mr. Tam’s evidence.

33.  In any event, as was pointed out by Miss Wong, Senior Counsel for the plaintiff, the audited accounts of Beijing K Vision were prepared by Sino Science’s auditors for the acquisition of the defendant’s shares in the project.  Had the building cost and Land Use Fees remained the liabilities of Beijing K Vision, they must have been clearly stated in the Audit Reports.  But there is nothing in the Audit Reports to show that the building cost and Land Use Fees remain outstanding.

34.  Mr. Wong criticized that the 3 tranches of payment were all made after the cutoff date, namely 31 August 1995, the date of the Agreement for sale of the defendant’s shares to Sino Science, and it would be illogical to treat them as prepayment as at 31 August 1995.  Mr. Tam has already clarified the meaning of the entry “預付帳款” as the amount that should be paid but not yet paid.  There is no evidence to rebut Mr. Tam’s evidence.

35.  Mr. Wong further submitted that even if this court accepted Mr. Tam’s explanation, Mr. Tam’s opinion was not factually sound and was internally inconsistent because of the following reasons.

36.  First, Mr. Wong said that the itemized breakdown of the Development Costs in the balance sheets of Beijing K Vision attached to the Audit Reports [C4-1899] would have included the remaining 60% of Land Use Fee, namely the 2^nd tranche of payment amounting to RMB62,201,000, the Land Use Fees under the Assignment Contract between Beijing Land Management Bureau and Beijing K Vision dated 6 December 1994 [B-247-52].  It seems that the Audit Reports of Beijing K Vision as at 31 August have already included the remaining 60% Land Use Fee, which was payable within 60 days from the signing of the Assignment – 6 February 1995.  I see no criticism on Mr. Tam’s treatment of this entry in the Audit Reports.

37.  Second, Mr. Wong submitted that “the prepayment” to Beijing Residential in the sum of RMB173,463,089 as specified in the 3^rd schedule attached to the Audit Report No.352 of Beijing K Vision [C4-1901] did not even cover the payment stipulated in the contract with Beijing Residential in the sum of RMB213,000,000 [B247-46].  Mr. Wong was referring to the Co-operation Development Agreement made between Beijing Residential and the defendant dated 23 April 1994.  Clause 5 of the Agreement provides that the defendant shall provide for the first stage building cost of RMB213,000,000.  Under this Agreement, the obligation to pay the sum of RMB213,000,000 is on the defendant, not Beijing K Vision.  Obviously, the sum of RMB213,000,000 should not appear in Beijing K Vision’s balance sheet.

38.  Third, Mr. Wong said that it was unclear why Mr. Tam thought the prepayment to Beijing Residential would have included the Land use Fees since the obligation to pay the Land Use Fees fell on Beijing K Vision, not Beijing Residential. It seems that this issue was not put to Mr. Tam in the cross-examination. It is also unclear what was the sale price of the shares of Beijing Residential to the defendant. This is due to the unavailability of complete accounting records of Beijing K Vision, which the defendant has been ordered to produce to the plaintiff for this hearing.

39.  Fourth, Mr. Wong submitted that there was no reason to doubt Mr. Qu’s evidence that the 3^rd tranche payment of RMB23,489,000 to Beijing K Vision represented the defendant’s share of the continued investment into the project.

40.  Mr. Qu has given evidence and said that all the 3 tranches of payment mentioned in paragraph 24 were the costs for the project and thus should be taken into account for the valuation of the profit from the sale.

41.  As to the incomplete set of accounts of the defendant, Mr. Qu explained that Miss Lam, the financial controller of the defendant, had changed the accounting records of the defendant.  She is still being involved in litigation taken out by the defendant.  The defendant had attempted to obtain her affirmation to verify its accounts, but she had refused to cooperate.  This is the reason why the defendant is unable to supply a complete set of its accounts for this hearing.

42.  Mr. Qu remains the major shareholder of the defendant.  The litigation between Miss Lam and Mr. Qu had commenced before 2004 [D-2230].  There is no evidence to show that the defendant had attempted to get another accountant to sort out the accounts for this hearing.  Not was there any evidence of attempt by the defendant to make enquiry with the liquidator of Beijing K Vision in relation to the payments made by it.

43.  However, Mr. Qu has made affirmations to say that out of the purchase price of shares to Far East, USD15,700,000 had been paid to one Hainan Overseas Chinese Investors Co. Ltd. [A-31,20B(9)]; that defendant had borrowed from OPL in excess of USD12 million [A-48(9)-(10), 18-19]; that the defendant had borrowed from other parties [A-48(10), 14]; that the defendant had made payments into the accounts of other parties directly in discharge of its liability incurred in developing the project [A-48(8),10(2)] and that the defendant had made payments directly to Beijing K Vision for the purpose of developing the project [A-48(8),10(3)].  Through Counsel, defendant conceded that there was no evidence to support those allegations.  I have no hesitation to dismiss them.

44.  Mr. Qu was unable to give a reasonable and satisfactory explanation as to why the defendant should further inject RMB23,489,000 to Beijing K Vision for the project, it being a minority shareholder holding only 20% of the interest of the project.  He also could not explain what return he had obtained from the investment of RMB23,489,000 in Beijing K Vision.  There is no increase of the defendant’s shareholding.  It defies commercial sense for the defendant to inject RMB23,489,000 in Beijing K Vision for nothing.  His evidence is simply inherently impossible of belief.

45.  Mr. Tam’s is an expert in this hearing, giving expert opinion on the accounts of Beijing K Vision.  He had made it clear that the account materials were not complete. He had to refer to the Arbitral Award, which the defendant accepts.  He was subjected to vigorous cross-examination.  He was able to tell the basis on which he formed his opinion and conclusion.  On the balance of probabilities, Mr. Tam’s evidence is more reliable.

The 2^nd Issue

46.  Mr. Tam admitted, upon cross-examination, that taxes were leviable on the two transactions of shares sales to Sino Science and Far East (the transactions).  Mr. Tam refused to take tax into account in his report for the reason that there was no formal demand from the Tax Authority.  The defendant has put forth its expert’s estimate of RMB27,459,585 for the tax, which Mr. Tam did not argue.  Mr. Tam may have the reason on the basis of accounting practice to ignore the issue of tax liability in his report, but I am unable to accept such reason to ignore tax liability for the transactions for this enquiry.  Provisions must be made for the tax.  Miss Wong, Senior Counsel suggested that the tax portion should be paid into court.  But I accept Mr. Wong’s argument that the amount of tax should not be paid into court, but should be taken into account for the calculation of the plaintiff’s profit.

47.  As to the penalty on late payment of tax for the transactions, since the defendant’s expert has given an opinion to say that there is no liability for penalty because the amount of tax is still subject to the litigation between Sino Science and the defendant.  It is not yet payable.  On this basis, no provision should be given for the tax penalty.

The 3^rd Issue

48.  Mr. Wong submitted that the litigation by Sino Science Securities Co. Ltd. (Sino Science Securities), a related company of Sino Science, was in fact a re-litigation of an issue decided in favour of the defendant in the Arbitral Proceedings.  He submitted that Sino Science Securities was re-litigating that the entire RMB portion and the US15,400,000 portion of the consideration were in fact loans extended by Sino Science to Beijing K Vision. [B-247-19]  According to the PRC lawyer of the defendant, if the decision were against Beijing K Vision in full, Beijing K Vision would be liable to the extent of RMB1,200,000,000 and if the decision were against Beijing K Vision in part, Beijing K Vision would be liable to the extent of RMB600,000,000.  Mr. Wong further submitted that an adverse finding against Beijing K Vision would objectively have an adverse impact of Mr. Tam’s opinion that the entirety of the Sino Science consideration should be treated as income of the defendant.

49.  Miss Wong argued that from the statement of claim of the said Action, it could be seen that Sino Science Securities was claiming against the Liquidation Committee of Beijing K Vision for repayment of loans with interests. [B-247(19) –(21)]  Even if Sino Science Securities succeeds in the litigation, there would be a monetary judgment of the amounts of principal and interests against Beijing K Vision, resulting in the net asset value of Beijing K Vision distributable to its shareholders upon liquidation being reduced.  There is simply no evidence to show how the judgment could possibly deprive the defendant of the monies it had already received from Sino Science for the 55% shareholding in Beijing K Vision.  The Arbitral Tribunal has already found that Sino Science had already paid to the defendant USD22 million and RMB105,690,000.  The Arbitral Award is final and binding as between the defendant and Sino Science. [B-226]

50.  Mr. Wong did not call the expert on PRC law to give evidence to support his submission that the result of the litigation between Sino Science Securities and Beijing K Vision would adversely affect the cash consideration for the sale of the 55% of defendant’s shareholding in Beijing K Vision to Sino Science.  I tend to agree with Miss Wong that the result of the litigation will only affect the asset value of Beijing K Vision, not the defendant, who is not even a party to this Action.  Up to date, there is no appeal against the decision of the said Arbitral Award.  I accept that if Sino Science Securities Co. Ltd. succeeds in its claims against Beijing K Vision, the asset value of Beijing K Vision will be affected, thus the value of the 3000 square meters of office building and 26.7% interest in Beijing K Vision will also be affected. But they are not relevant for the present enquiry of the defendant’s account for the cash consideration, which is not related to the asset value of Beijing K Vision.

51.  I find that the 3^rd issue does not assist the defendant.

The 4^th issue

52.  The fourth issue concerns the interest payable under a loan recorded in the defendant’s account for the sum of RMB110,250,443.87 for the year 2003 [B-247-81], which the defendant said that it was the US12 million it had injected in Beijing K Vision as the registered capital.  In the hearing, parties referred to an agreement made between the defendant and OPL dated 30 June 1994. [B-106]  But according to the terms of this agreement, it was not a loan agreement, but a joint venture agreement whereby OPL paid USD12 million to the defendant for the joint venture of developing the project.  In this agreement, it was provided that OPL might recoup the capital together with 30% profit in 6 months and 40% profit in 9 months.  The defendant submitted that the interest (profit) payable should be deducted from the sales proceeds.

53.  The plaintiff argued that the court should give no weight to this agreement because the terms were not commercial terms that called for explanation, which was not forthcoming. Senior Counsel went further to say that if it were genuine, it was nothing more than a transparent ploy to provide Mr. Qu an excuse to forfeit the plaintiff’s share in the project.

54.  It would be inappropriate to rule that this agreement has no legal effect without a proper trial of the issues involved.  However, I find that it is not necessary to take into account of the interest (profit) in this exercise for the following reasons:

(1)   There is no evidence that defendant has ever paid any interest or profit under this agreement and the defendant is unable to give any reason for this.

(2)   The defendant’s solicitors had sent a letter dated 3 December 2008 to OPL inquiring about the interest due to it.  Up to date, there has been no response from OPL.

(3)   Mr. Qu has interest in OPL, yet, he is unable to offer any explanation for the above;

(4)   There is no evidence of how much the interest (profit) should be.

(5)   The time for the defendant to repay the principal together with interests has been long overdue since 1994.  OPL has taken no step to enforce the agreement.

(6)   Such interest (profit), if any, can be taken into account in the remaining asset of Beijing K Vision under liquidation.

Conclusion

55.   As a conclusion, I decide to adopt Mr. Tam’s report for the valuation of the plaintiff’s 35% in the cash consideration for the sale of the defendant’s 55% shareholding in Beijing K Vision to Sino Science and its sale of 25% shareholding in Beijing K Vision to Far East.  Of the amount of HK$142,289,710.94, tax provision of RMB27,459,585, which is equivalent to HK$34,324,481.25 as according to Mr. Tam’s report using HKS1 to RMB0.88, should be taken into account, the net amount being HK$107,965,229.69.  The plaintiff’s interest is (35% x HK$107,965,229.69) = HK$37,787,830.40 together with interest at the prime rate of the HSBC from time to time, being the commercial rate, from 26 October 1995, the date of cause of action to 19 July 2007, the date of Judgment and thereafter at the judgment rate until payment. The question of interest is subject to parties’ agreement or argument by submission in writing to be submitted within14 days from the date of delivery of this Decision.

Orders

56.  I shall make the following orders accordingly:

(1)   The defendant do pay the plaintiff HK$37,787,830.40 (35% of HK$34,324,481.25) together with interest at the prime rate of the HKBC from time to time, being the commercial rate, from 26 October 1995, the date of cause of action to 19 July 2007, the date of Judgment and thereafter at the judgment rate until payment, subject to parties’ agreement or argument as stated above;

(2)   A declaration that the plaintiff has a 35% beneficial interest in the defendant’s property rights in 3,000 sq. m. of the completed office building of Celebrity;

(3)   A declaration that the plaintiff has a 35% beneficial interest in the defendant’s 26.7% share in the net asset value of Beijing K Vision;

(4)   Liberty to apply;

(5)   Defendant do pay the costs of this application, including all costs reserved to the plaintiff, such costs are to be assessed summarily under Order 62 rule 9A of the RHC and the plaintiff shall within 14 days after the order has become absolute file and serve the schedule of costs.  The defendant is at liberty to file and serve the objections within 7 days thereafter.  A hearing shall be fixed for the summary assessment, with time estimated to be 30 minutes before Master Lung.  This is an order nisi, to be made absolute after 14 days after the announcement of this Decision under Order 42 rule 5B(6) of the RHC.

57. I thank Senior Counsel and Counsel for their assistance.

   HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2884 OF 2004

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HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

______________________

______________________

______________________

D E C I S I O N

______________________

Background:

1.  There is no dispute between the parties that in 1994, it was agreed between Ms Chow and Mr Qu, of K Vision, that in consideration of Ms Chow applying her professional knowledge and skills to the business of a joint-venture company, Beijing K Vision Building Construction Company Ltd, (Beijing K Vision) in relation to a building project in Beijing known as Celebrity Plaza, Ms Chow would be entitled to 35% of the interest of K Vision.  K Vision was a 20% partner in the joint-venture company.

2.  By a deed made on an unknown day in 1988, K Vision acknowledged that Ms Chow has a 35% interest in the 20% share held by K Vision in the joint-venture project.  The deed records that K Vision would hold Ms Chow’s 35% interest as trustee for her.  The deed further records that at the request of Chow, K Vision and Mr Qu Hong, and Ms Lam Yin, both directors of K Vision, and themselves signatories to the deed, would execute all relevant documents to ensure that the terms of the deed were effectively carried out.

3.  Now Ms Chow sues K Vision to enforce the deed.  By a writ issued in 2004, Ms Chow seeks a declaration that the deed is a valid, subsisting and binding obligation on K Vision, and an order that K Vision pay to her such sum as is found due upon the taking of an account.

4.  In January 2005, Ms Chow filed a summons for summary judgment which, following the signing of a number of affidavits, came before the Master on 19 July 2007.  The Master gave summary judgment to Ms Chow.  From that judgment, K Vision now appeals.

The deed:

5.  There is no dispute that all of the necessary formalities of a deed, that it is, that it is written on paper, that it contains the parties names, that the recitals state facts on which the act to be evidenced by the deed is grounded, that it is signed by the parties, that it is sealed, and that there has been delivery, are present. 

6.  Other than the addition of the number “8”, to the provision of the numbers “199 ” in the deed, thereby signifying that it was signed in 1998, no complete date has been endorsed upon the deed.  A date is not essential on a deed; a deed takes effect on its date of delivery: see Chitty on Contracts Vol 1 para 1-083. 

7.  There is no limitation issue.  A deed is a specialty, the limitation period for an action on a specialty being 12 years: s 4 Limitation Ordinance Cap 347.

The defence claimed:

8.  The affidavits for K Vision acknowledge that in 1994, K Vision agreed to give to Ms Chow 35% of its interest in the joint-venture project and that it would hold that interest on trust for Ms Chow, who was entitled to demand transfer of the 35% interest from K Vision at any time.  The consideration for that agreement was an agreement by Ms Chow to provide services to be joint-venture in relation to Celebrity Plaza.

9.  Neither party suggests that Ms Chow’s interest was to be a specific monetary sum, and that at the time of the original agreement in 1994, that sum was represented by the 35% interest.  Consequently it is clear that Ms Chow’s interest was to have such value as it had, at the time a demand for transfer was made.

10.  The case for K Vision is that the deed is merely a record of an arrangement made in 1994, which had been superseded by undisputed intervening events prior to 1994, and the making of the deed in 1998.  It is contended that the deed was made as Ms Chow requested, for her own purposes, a document evidencing the arrangement that had been previously made, but discharged.

11.  To justify the assertion that the arrangement made in 1994, was superseded by intervening events, Mr Qu of K Vision says that in July 1995, at the request of Ms Chow, 550,000 shares in K Vision, owned by Mr Qu, (55% of the share capital), were, at the request of Ms Chow, transferred to her brother Mr Chow Fu Chu, who was acting as a nominee for Ms Chow.  These shares were then transferred by Mr Chow to Ms Chow on 4 November 1996.  The affidavit for K Vision asserts that this transaction was by way of replacement for the trust agreement that had been made in 1994.

12.  Mr Qu asserts that in January 1997, Ms Chow, who, he says, had not contributed to the Celebrity Plaza project, was satisfied that by way of her own company she could invest in PRC property without using K Vision as a vehicle.  Consequently, he says, she agreed to give up her interest in K Vision and transferred the 550,000 shares back to Mr Qu.

13.  Mr Qu does not suggest that there was any monetary consideration paid to Ms Chow on this transaction.  Rather, he asserts that she “agreed to give up” for interest in K Vision.

The answer to the defence:

14.  Ms Chow, for her part, acknowledges the fact of the share transaction between Mr Qu and herself, by way of her brother, but explains it as part of a device whereby K Vision could present itself to a prospective investor as being a company in which Mr Qu was not a majority shareholder, that investor being anticipated to be reluctant to invest if it knew that Mr Qu was a majority shareholder.

Is the defence arguable?

15.  Mr Coleman frankly acknowledges that the proposition that he must advance constitutes an assertion that K Vision, and its directors, have entered into a solemn deed acknowledging that K Vision is bound by a trust, in circumstances where, some years previously, that obligation was fully discharged.  He is obliged to accept that no mention is made of that situation in the recitals to the deed.  In the absence of any reference to the so-called “superseding events” in the deed, the proposition is one which will require cogent evidence to substantiate an assertion that it is arguable.

16.  Mr Coleman explains the absence of those circumstances from the recitals by pointing to the fact that the deed was prepared by Ms Chow’s solicitors and that she would have no reason to include them.

17.  But at the same time, K Vision had every reason to include those circumstances in the recitals.  There is no explanation as to why the superseding events were not included at the request of K Vision. 

18.  On the face of the document, it records an outstanding and undischarged obligation.  There is no suggestion that K Vision and its directors were required to sign the documents in the presence of Ms Chow’s solicitors, (who prepared the deed).  There is no suggestion that K Vision or its directors were not able to take their own legal advice on the deed. 

19.  Thus, in the absence of an arguable explanation for the absence of those recitals, the only inference to be drawn from the absence from the recitals to the deed, of the circumstances now contended for, is that the obligation was still outstanding.

20.  So it is necessary to look at the circumstances now contended for to see if they are believable or arguable.

Discussion:

21.  In his first affidavit, made in January 2007, Mr Qu had this to say by way of explanation for the making of the deed:

“

For her own reason which is not entirely clear to me, (Ms Chow) later requested (K Vision) to reduce the (1994) Agreement into writing in the form of Deed of Trust.  Give my good relationship with (Ms Chow) at that time, I did not object to (Ms Chow’s) request as long as it would assist (Ms Chow) to achieve her own purposes.”

In a subsequent affidavit, made as recently as 29 January 2008, Mr Qu explained the making of the deed in this way:

“	(Ms Chow) represented to me that this was to facilitate negotiation with others in new property development projects.  As such I believe that the execution of a deed of trust would only serve as a record of the (1994) Agreement.”

22.  No explanation is offered by Mr Qu as to why he is now able to give a clear reason for the making of the deed.  In any event the explanation is unbelievable.  It is not in dispute that Ms Chow is herself a substantial property developer.  No sensible explanation is made as to why she would need such a document to “facilitate negotiation with others”.  It is simply unbelievable that an experienced businessman such as Mr Qu would, for this reason, agree to enter into a deed containing an obligation that had been fully discharged, without recording anywhere the fact that the obligation has been discharged.

23.  Ms Wong refers me to the decision of the Court of Appeal in Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262, a case in which a plaintiff sued on a document which the defendant asserted was a sham.  A number of undisputable documents arguably substantiated the proposition that the document sued upon was a sham.  Unconditional leave to defend was granted.  In the present case, she argued, there were no such documents.

24.  Mr Coleman replied by pointing to the share transfers evidencing the transfer of the 55% interest in K Vision to Ms Chow in July 1995, and contended that those documents must give rise to a suspicion that Ms Chow had received all that to which she was entitled.

25.  I reject the proposition.  Here, the documents relied upon rather than arguably substantiating Mr Qu’s explanation for them, are showing of a simple analysis not to support his explanation at all, but rather to wholly substantiate Ms Chow’s version of events.

26.  First, no explanation is offered as to why Mr Qu would transfer a 55% interest in K Vision to Ms Chow when she was only entitled to demand a 35% interest.  If the July 1995, share transfer was in satisfaction of the trust obligation it would have been a transfer of a 35% interest.  If the transfer of the 55% interest was in satisfaction for Ms Chow’s right to demand a 35% interest, then there should be some proper explanation from Mr Qu of the difference.  That is especially so when regard is had to the evidence as to the value of the interest, (as to which see below).   He offers no explanation at all is the way Ms Chow should receive a further 20% interest above that to which she was entitled.

27.  Second, the suggestion that she would simply “return”, or “give up” the shares to Mr Qu in January 1997, for no consideration at all, is simply unbelievable. 

28.  The unchallenged evidence establishes that in September 1995, K Vision sold 55% of the shares it held in Beijing K Vision to Sino Scientific International Trust Investment Company, for RMB294,518 200,000.  Next, in September 1996, K Vision sold a 25% shareholding in Beijing K Vision to Far East Petroleum Company Ltd for US$17,238,000, (HK$134,456,400).

29.  On any terms, these transactions indicate that both a 55% and a 35% interest in K Vision, both in July 1995, and in January 1997, were worth a very substantial sum of money, probably in the order of HK$175 million.  It must be borne in mind that in January 1997, the Asian Financial Crisis had not yet arrived and markets, including property markets throughout the region, were booming.  It is simply not believable that a person would “give up” such an interest for no consideration at all. 

30.  Third, the fact that Ms Chow did not receive any documentation in relation to the transfer to her brother, or to her, of the 55% interest, and that she transferred the interest back to Mr Qu for no consideration at all, is entirely consistent with the reason given by Ms Chow for the transaction.

31.  Fourth, that the 55% interest was transferred to Ms Chow, not to satisfy the claim she had for a 35% beneficial interest pursuant to a trust, but as part of a scheme to enable a third-party investor to be brought in, is entirely consistent with there being no reference to that transaction in the recitals to the deed.  It is consistent with there being no reference to the transaction in the deed on the basis that it was entirely unrelated to the obligation recorded by the deed.  On the other hand, anyone entering into the deed in the circumstances of K Vision and its directors would undoubtedly be anxious to ensure that the deed recorded that the obligation had been discharged.

32.  Mr Coleman pointed out that in litigation before Kwan J in December 2005, in which attempts were being made to wind up K Vision, the judge was of the view that the application, together with other legal actions in Hong Kong, including these proceedings, were part of what she described as “a concerted move against (K Vision).”  Mr Coleman relied upon this to say that the transaction now sued on should be viewed with suspicion.

33.  It is quite understandable that on a discretionary matter such as the appointment of liquidators, a judge might look at a whole series of matters, particularly a whole range of other litigation between the same parties, in the exercise of the discretion. 

34.  But it must be remembered that in the proceedings then before the court, Ms Chow, although apparently being aware of the proceedings, was not represented or heard. 

35.  There is no doubt as to the existence of the original agreement, that is not denied by Mr Qu.  Neither can the existence of the deed and its plain terms be denied.  While Kwan J may have been perfectly right to view the whole series of proceedings, collectively, as a suspiciously concerted move, that is a conclusion which might well have been reached even though one of the sets of proceedings referred to, (but not examined by the judge), was entirely justified.

36.  The fact that there is other ongoing litigation between the parties does not weigh in favour of the assertions made by Mr Qu.

37.  Mr Coleman relied upon Extraktionstechnik Gesellschaft für Anlagenbau GmbH v Oskar (1984) SJ 417, (applied in Billion Silver), where it was held that where there are unexplained features of both the claim and defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success or the parties or the relative strengths of the good or bad faith and should give unconditional leave to defend. 

38.  Unlike that case, there is nothing false or questionable about the basis of the claim made by Ms Chow.  It is simply a straightforward claim on a deed for a perfectly understandable, and in the circumstances of this case, undisputed, entitlement by a beneficiary to a trust.  In answer to the claim the defendant puts forward another transaction which it says has discharged the entitlement. 

39.  This is not a case in the category ofExtraktionstechnik, where both the claim and the defendants had disturbing features. In this case it is simply the plaintiff’s response to the defence which exposes, openly, a questionable business dealing.  No effort has been made by Ms Chow to hide the true nature of this dealing which, being quite unrelated to the deed upon which she sued, need not have been referred to until raised by Mr Qu.

40.  Unlike the judge at first instance, and the Court of Appeal, in Billion Silver, notwithstanding her involvement in a questionable business dealing, I am left with no suspicion at all in relation to Ms Chow’s case.

Conclusion:

41.  I accordingly hold that no arguable defence is disclosed.  The application to summary judgment was correctly dismissed by the Master.  The appeal fails.  The defendant must pay Ms Chow’s costs on the appeal.  There will be a certificate for two counsel.

HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

______________________

______________________

______________________

J U D G M E N T

______________________

Introduction

1.  This is an appeal from a decision of Master Au Yeung who declined to stay this action on the ground that Hong Kong is forumnon conveniens.

2.  The action is brought by the Plaintiff who seeks a declaration against the Defendant, based on a Deed of Trust, that the Deed is valid and subsisting and that the Defendant should account to her for her share of income and profit, alternatively damages in respect of the subject matter of the Deed which concerns a joint venture project at Beijing to build a commercial complex there by the name of Celebrity Plaza.

The Nature of the Joint Venture

3.  In the course of 1994 the Defendant, which is a Hong Kong company, entered into joint venture with a PRC company called China Beijing Residential Development Construction Holdings to build Celebrity Plaza.  At about this time the Defendant, through one of its directors, Mr Qu Hong agreed with the Plaintiff, who has much expertise in this type of joint venture construction project in the PRC, that in consideration for her professional expertise and services, the Defendant would hold 35% of its share in the joint venture on trust for her benefit.  This was reduced into writing in 1998 in the form of Deed of Trust and signed by Mr Qu and a Madam Lam Yin, as directors of the Defendant, on the Defendant’s behalf and by the Plaintiff herself.  [The Deed is at page 3 of the Bundle and in translation starts at page 6A.]

4.  The building project was, I am told, completed in 2004 following which the Plaintiff’s then solicitors wrote to the Defendant’s solicitors asking for payment out to her of her share of profit and income as provided for in the Deed.  The Defendant refused to acknowledge the Plaintiff’s entitlement, hence this action by her to secure a declaration and thereafter an account of profit and income due to her.

Other Proceedings

5.  There are a number of actions currently afoot which have been set out in Mr Qu’s affirmation dated 21 January 2005 [page 10].  Also awaiting trial is a winding-up application against the Defendant brought by a number of creditors including this Plaintiff which will be heard by Kwan J in January next year.  I am told that it is based on non-payment of debts as well as on the basis of oppressive conduct by the majority shareholders against the minority.  Finally, I should also mention, because this will impact on the decision that I have to make on this appeal, that Beijing K Vision, which is the name of the joint venture company in which the Defendant is a shareholder, is in the process of being liquidated.  The Beijing Commerce Bureau, which is a government appointed body, has placed the affairs of the joint venture company for the purpose of its liquidation into the hands of a liquidation committee.  And so this is how the matter currently lies.  I should also mention one other matter which is that in this action the Plaintiff intends to seek summary judgment against the Defendant, which application has been adjourned to await the outcome of this appeal.

The Argument

6.  As one might expect counsel are agreed as to the relevant principles which govern an application of this sort.  The law is to be found in the speech of Lord Goff of Chievely in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460.  Mr Wong for the Defendant (the Applicant) has helpfully set out the principles in summary form which appear in the current edition (14^th) of Dicey, Morris and Collins: The Conflict of Laws.  I gratefully adopt this summary here:

“	(1)	In general the legal burden of proof rests on the defendant to persuade the Court to exercise its discretion to grant a stay.
	(2)	If the Court is satisfied by the defendant that there is another available forum which is clearly more appropriate forum for the trial of the action, the burden will shift to the claimant to show that there are special circumstances by reason of which justice requires that the trial should nevertheless take place in Hong Kong.
	(3)	The burden on the defendant is not just to show that Hong Kong is not the natural of appropriate forum, but to establish that there is another forum which is clearly or distinctly more appropriate than the Hong Kong forum.
	(4)	The Court will look to see what factors there are which point in the direction of another forum as being the ‘natural forum’, ie that with which the action has the most real and substantial connection.  These will include factors affecting convenience or expense (such as availability of witnesses) and such other factors as the law governing the transaction and the places where the parties reside or carry on business and also whether the claim is part of a larger overall dispute which would be damaged by being fragmented.
	(5)	If, however, the Court concludes that there is some other available forum which prima facie is clearly more appropriate, it will ordinarily grant a stay unless there are circumstances by reason of which justice requires that a stay should not be granted.
	(6)	A stay will not be refused simply because the claimant will thereby be deprived of ‘a legitimate personal and juridical advantage’, provided that the Court is satisfied that substantial justice will be done in the available appropriate forum.
	(7)	If the legal issues are straightforward, or if the competing forums have domestic laws which are substantially similar, the identity of the governing law will be a factor of rather little significance.”

7.  Mr Wong has, I think rightly, accepted that but for the relief sought, which is for an account, for reasons which I will need to explain in a moment, he would have had a virtually impossible task in persuading me to grant a stay.

8.  This action is, after all, about a declaration in respect of a Deed of Trust entered into in Hong Kong, signed by Hong Kong residents, the governing law of which are the laws of Hong Kong.  The Defendant being a party to the Deed is a Hong Kong company.  At this stage everything points to this court as the natural forum for the resolution of the question of whether “the Trust is valid and subsisting and binding on the Defendant …” and whether “… the Defendant is obliged to account to the Plaintiff the Plaintiff’s share … in Celebrity Plaza …” [para. 1 of the prayer of the Statement of Claim].

9.  Notwithstanding that the underlying subject matter of the trust, being the joint venture company’s construction of Celebrity Plaza at Beijing, Mr Au for the Plaintiff rightly submits that this is an action in personam based on the Trust Deed.

10.  Accepting the force of that argument, Mr Wong says that what really tips this matter in favour of the courts of Beijing and therefore in favour of a stay is that the relief sought is for an account.  This places the Plaintiff in very real difficulties, submits Mr Wong, because all the paper work and documents which are essential to the taking of an account are physically located at Beijing and in the possession of the liquidation committee which I have referred to.  Mr Wong’s submission comes to this; that this court will simply be unable to perform its task in arriving at a proper account without those documents, assuming for the moment that the Plaintiff gets her declaration.  This trial therefore is one that should be held before a court which will be able to call for the documents.  Whilst Mr Wong accepts that the concept of a trust was unknown to the laws of the PRC until recently, its court should not have any real difficulty in applying Hong Kong law to determine the validity or otherwise of the Trust Deed and thereafter, if the Plaintiff gets home on liability, will be infinitely better placed than this court to conduct the holding of an account for the reasons which I have already referred to.

11.  Mr Au has made a number of points as to why the application is a hopeless one, to use his language.  Firstly, he says that overwhelmingly this is a Hong Kong case for the reasons that I have already summarised and, in this regard I consider that he is correct.  Replying to Mr Wong’s principal point that the documents that will be required for an account are physically located at Beijing and under the custody and control of the liquidation committee, Mr Au submits that it is much too early to be considering any potential difficulties as to access to such documents.  Once this court determines the validity of this Hong Kong Trust Deed, applying its governing Hong Kong law, it will then go on and direct an account to be taken.  The process by which this is done is set out in Vol. 2 of the current edition of Bullen and Leake46-01 which is in these terms:

“Although accounts were sometimes ordered in the common law courts, the remedy of an account is chiefly the creation of the courts of equity.  By an order for an account, the court compels the defendant to produce the documents and records of his dealings with the relevant property and explain such dealings by sworn witness statement.

The essential feature of the cause of action for an account is that the defendant is an ‘accounting party’, someone who is or has been in such a relation to the claimant that he is obliged to render an account.  Such a person may be an agent, a broker, a trustee, or a person who has rendered himself liable to account as a constructive trustee by reason of his dealings with property the subject of a trust or fiduciary obligation.  The circumstances in which an account may be ordered are almost infinitely variable.”

One can see therefore that once the account is taken the burden will be on the losing Defendant to produce the necessary documents and records.  Mr Au says that Mr Wong’s evidence is grossly deficient.  Although, Mr Qu affirms that the papers are with the liquidation committee he does not say that the Defendant does not have copies, nor that copies will not be made available by the committee.  At this stage therefore, Mr Au submits, that there is no reason to think that once ordered to produce the record by this court that the Defendant will not be able to do so particularly now that Hong Kong civil judgments are recognised and reciprocally enforceable in the PRC.  The Defendant will be able to go to the relevant court at Beijing and show what its obligations are under a judgment ordering an account and therefore seek that court’s assistance to obtain the documents required for the taking of an account in Hong Kong.

12.  In my judgment, Mr Au’s analysis is the correct one.  Firstly, overwhelmingly a Hong Kong case on the issue of liability and thereafter no compelling evidence that this court will not be able to obtain due performance by the Defendant of any account that it requires from it.

Other Reasons for Refusing a Stay

13.  Mr Au has also pointed to two further reasons why the application should be refused.  Firstly, because the applicant has not indicated which court is the more appropriate forum to this court.  He submits that it is insufficient to merely indicate the location of the suggested court, in this case Beijing.  He supports this proposition by reference to the Court of Appeal’s decision in Greenwood Ltd v Pearl River Container Transportation Ltd, CACV 27/1994 unreported.  In that case the Defendant had suggested that the trial should take place before a Chinese court, but never suggested in which particular court this should be.  All three Justices, Power VP and Nazareth and Litton JJA’s (as they then were) held that this was simply not sufficient and what was required was that the Plaintiff and the court should know with precision which particular court was the more suitable forum.  For this and for other reasons, which are not relevant to this matter, they declined to order a stay.  This point is further explained in “The Conflict of Laws in Hong Kong” by Graeme Johnston at 3.061 page 107 to identical effect.

14.  Secondly, the applicant for a stay should also identify its defence with sufficient particularity to demonstrate a real issue requiring resolution between the parties.  If there is no bona fide defence then a challenge based on forum non conveniens grounds will fail.  See “The Conflict of Laws in Hong Kong” at 3.062 (ibid).  This proposition comes from a series of English cases being Adria Services YU v Grey Shipping Co. Ltd (Folio 212/1993, unreported, Bank of Credit and Commerce Hong Kong Ltd v Sonali Bank (1995) 1 Lloyd’s Rep. 227 and Standard Chartered Bank v Pakistan National Shipping Corporation & Ors (1995) 2 Lloyd’s Rep. 365 — all of which were applied in Hong Kong by Stone J in Bayer Polymers Co. Ltd v ICBC, Hong Kong Branch (2000) 1 HKC 805.

15.  In this matter, Mr Au correctly observed that nowhere in the evidence has the Defendant indicated its defence or the issues that it proposes to raise which are said to give rise to an arguable defence, which is all that is required.

Conclusion

16.  For all these reasons I am satisfied that no stay should be granted.  This matter should be tried in this court.  The Master was right to have refused the application with the consequence that this appeal must stand dismissed with costs.

17.  In the event of my having ruled as I have just done the parties have asked me to make further directions as to the conduct and hearing of the Plaintiff’s application for summary judgment. 

	They are these:
(1)	The Defendant do file within 28 days from today its affirmation in opposition to the Plaintiff’s Order 14 application;
(2)	The Plaintiff do file and serve its reply thereto within 14 days therefore;
(3)	No further affirmations without leave;
(4)	The hearing of the Order 14 application be fixed with a 3½ hour estimate.